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Foreign Direct Investment And Income Inequality—Empirical Evidence From The Southern African Development Community (SADC)

IJED, Vol. 13 No. 1, (2019)

Even though the impact that foreign direct investment (FDI) has on economic growth has received considerable empirical attention in Southern African Development Community (SADC), but its impact on income inequality has largely been neglected in the literature. But for FDI to catalyze inclusive growth and reduce poverty, a critical analysis of its distributional effects needs to be conducted. This paper therefore employs panel cointegration and causality techniques to examine the FDI-income inequality nexus in 15 SADC countries from 1990 to 2015. On the overall, FDI is found to have an inequality-increasing effect on the SADC region. Furthermore, a unidirectional causality-relationship is found running from FDI to income inequality, suggesting that FDI is a cause but not a consequence of inequality. But since education appears to reduce the level of FDI-induced inequality, it may be prudent for SADC to enhance its quality and quantity of education in order to reduce inequality.

Key words: Foreign Direct Investment, income inequality, panel cointegration and causality, Generalized Methods of Moments approach (GMM), SADC

JEL Classification: F21, F23, D31, C23

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