The effect of remittances and FDI inflows on income distribution in developing economies

TY - JOUR

T1 - The effect of remittances and FDI inflows on income distribution in developing economies

AU - Song, Yuegang

AU - Paramati, Sudharshan Reddy

AU - Ummalla, Mallesh

AU - Zakari, Abdulrasheed

AU - Kummitha, Harshavardhan Reddy

N1 - This study received the financial support of the National Social Science Foundation (the impact of heterogeneity of regional trade in service agreements on the reconstruction of the global value chain of the manufacturing industry in China; Project No: 20BJY091) and the innovation team project of Philosophy and Social Sciences in Colleges and Universities of Henan Province (coordinated development of urban and rural areas and rural revitalization; Project No: 2021-CXTD-04).

PY - 2021/12

Y1 - 2021/12

N2 - This study aims to examine empirically the effect of remittance inflows, FDI, and economic growth on income inequality. We include financial development and trade openness as potential determinants of income inequality. We utilise annual data from 1980 to 2016 and consider a sample of 20 major remittance–receiving developing economies. The empirical results from the panel cointegration models confirm the presence of a long-run equilibrium relationship among the variables. Our results on long-run elasticities suggest that increase in FDI inflows and remittances raise income inequality, while economic growth reduces. The findings also establish unidirectional causality from economic growth to income inequality. Given these findings, we suggest that policy makers frame appropriate policies for the effective use of remittances and FDI inflows to reduce income inequality in developing economies.

AB - This study aims to examine empirically the effect of remittance inflows, FDI, and economic growth on income inequality. We include financial development and trade openness as potential determinants of income inequality. We utilise annual data from 1980 to 2016 and consider a sample of 20 major remittance–receiving developing economies. The empirical results from the panel cointegration models confirm the presence of a long-run equilibrium relationship among the variables. Our results on long-run elasticities suggest that increase in FDI inflows and remittances raise income inequality, while economic growth reduces. The findings also establish unidirectional causality from economic growth to income inequality. Given these findings, we suggest that policy makers frame appropriate policies for the effective use of remittances and FDI inflows to reduce income inequality in developing economies.

KW - Remittances

KW - FDI inflows

KW - Economic growth

KW - Income inequality

KW - Developing economies

KW - Panel data analyses

UR - https://www.scopus.com/pages/publications/85114185560

U2 - 10.1016/j.eap.2021.08.011

DO - 10.1016/j.eap.2021.08.011

M3 - Article

SN - 0313-5926

VL - 72

SP - 255

EP - 267

JO - Economic Analysis and Policy

JF - Economic Analysis and Policy

ER -