Economic growth and foreign direct investment and its incidence on inequality worldwide: a cointegration and causality approach in panel data

Article Sidebar

PDF (Español (España)) HTML (Español (España))
Published: Mar 19, 2022
DOI: https://doi.org/10.54753/rve.v10i1.1295

Main Article Content

Andrea Salinas
Carrera de Economía, Universidad Nacional de Loja, Loja, Ecuador
Bryan Tillaguango
Carrera de Economía, Universidad Nacional de Loja, Loja, Ecuador

Abstract

The objective of this research is to analyze the link between the Gini Index, economic growth and foreign direct investment (FDI) in 100 countries worldwide, period 1980-2015. Panel data cointegration techniques were implemented, such as the Pedoni (1999) cointegration models that evaluate the long term, while the Westerlund (2007) cointegration test was implemented for the short term. Likewise, to obtain the strength of the cointegration vector, Dynamic Ordinary Least Squares (DOLS) and Dynamic Ordinary Least Squares (PDOLS) models were used. In the case of causality, the test proposed by Dumitrescu /& Hurlin (2012) was implemented. The results of the cointegration tests show us that the Gini Index, economic growth and FDI have a joint movement in the short and long term. The PDOLS and DOLS models show that the cointegration vector between the Gini Index and economic growth is stronger in LMICs and LMICs. On the other hand, the causality results of Dumitrescu & Hurlin (2012) confirm the existence of bidirectional causality between inequality and gross domestic product in lower-middle-income countries (LMICs).

Metrics

Metrics Loading ...

Article Details

How to Cite
Salinas, A., & Tillaguango, B. . (2022). Economic growth and foreign direct investment and its incidence on inequality worldwide: a cointegration and causality approach in panel data. Revista Económica, 10(1), 87–99. https://doi.org/10.54753/rve.v10i1.1295
Issue
Vol. 10 No. 1 (2022): RVE Vol 10 (January - June 2022)
Section
RESEARCH ARTICLES
Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Esta obra está sujeta a la licencia Reconocimiento-NoComercial-SinObraDerivada 4.0 Internacional de Creative
Commons. Para ver una copia de esta licencia, visite http://creativecommons.org/licenses/by-nc-nd/4.0/.

References

Achten, S., & Lessmann, C. (2020). Spatial inequality, geography and economic activity. World Development, 136, 105114.

Agusdinata, D. B., Aggarwal, R., & Ding, X. (2021). Economic growth, inequality, and environment nexus: using data mining techniques to unravel archetypes of development trajectories. Environment, Development and Sustainability, 23(4), 6234-6258.

Akaike, H. (1974). A new look at the statistical model identification. IEEE transactions on automatic control, 19(6), 716-723.

Anyanwu, U. M., Anyanwu, A. A., & Cieślik, A. (2021). Does abundant natural resources amplify the negative impact of income inequality on economic growth?. Resources Policy, 74, 102229.

Ascani, A., Balland, P. A., & Morrison, A. (2020). Heterogeneous foreign direct investment and local innovation in Italian Provinces. Structural Change and Economic Dynamics, 53, 388-401.

Aust, V., Morais, A. I., & Pinto, I. (2020). How does foreign direct investment contribute to Sustainable Development Goals? Evidence from African countries. Journal of Cleaner Production, 245, 118823.

Azlina, A. A., & Mustapha, N. N. (2012). Energy, economic growth and pollutant emissions nexus: the case of Malaysia. Procedia-Social and Behavioral Sciences, 65, 1-7.

Basu, P., & Guariglia, A. (2007). Foreign direct investment, inequality, and growth. Journal of Macroeconomics, 29(4), 824-839.

Bhagat, S. (2020). Economic Growth, Income Inequality, and the Rule of Law. Harvard Business Law Review.

Breitung, J. (2001). The local power of some unit root tests for panel data. Emerald Group Publishing Limited.

Breunig, R., & Majeed, O. (2020). Inequality, poverty and economic growth. International Economics, 161, 83-99.

Brida, J. G., Carrera, E. J. S., & Segarra, V. (2020). Clustering and regime dynamics for economic growth and income inequality. Structural Change and Economic Dynamics, 52, 99-108.

Chen, Z., Ge, Y., & Lai, H. (2011). Foreign direct investment and wage inequality: Evidence from China. World Development, 39(8), 1322-1332.

Chiu, Y. B., & Lee, C. C. (2019). Financial development, income inequality, and country risk. Journal of International Money and Finance, 93, 1-18.

Crouch, C. (2019). Inequality in post-industrial societies. Structural Change and Economic Dynamics, 51, 11-23.

Dabús, C., & Delbianco, F. (2021). Income Inequality and Economic Growth in Developing Countries: The Role of Savings. Asian Journal of Latin American Studies, 34(1).

Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: journal of the Econometric Society, 1057-1072.

Dorsch, M. T., & Maarek, P. (2020). Economic downturns, inequality, and democratic improvements. European Journal of Political Economy, 62, 101856.

Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic modelling, 29(4), 1450-1460.

El-Shagi, M., Fidrmuc, J., & Yamarik, S. (2020). Inequality and credit growth in Russian regions. Economic Modelling, 91, 550-558.

Enders, W., & Sandler, T. (1995). Terrorism: Theory and applications. Handbook of defense economics, 1, 213-249.

Espoir, D. K., & Ngepah, N. (2021). Income distribution and total factor productivity: a cross-country panel cointegration analysis. International Economics and Economic Policy, 1-38.

Esquivias, M. A., & Harianto, S. K. (2020). Does competition and foreign investment spur industrial efficiency?: firm-level evidence from Indonesia. Heliyon, 6(8), e04494.

Giroud, A., & Ivarsson, I. (2020). World Investment Report 2020: International production beyond the pandemic.

Granger, C. W. (1988). Causality, cointegration, and control. Journal of Economic Dynamics and Control, 12(2-3), 551-559.

Groth, C., & Madsen, J. B. (2016). Medium-term fluctuations and the “Great Ratios” of economic growth. Journal of Macroeconomics, 49, 149-176.

Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the Econometric Society, 1251-1271.

He, S. Y., Lee, J., Zhou, T., & Wu, D. (2017). Shrinking cities and resource-based economy: the economic restructuring in China's mining cities. Cities, 60, 75-83.

Heckman, J. J., & Yi, J. (2012). Human capital, economic growth, and inequality in China (No. w18100). National Bureau of Economic Research.

Huynh, C. M. (2021). Foreign direct investment and income inequality: Does institutional quality matter?. The Journal of International Trade & Economic Development, 1-13.

Ibarra-Olivo, J. E. (2021). Foreign direct investment and youth educational outcomes in Mexican municipalities. Economics of Education Review, 82, 102123.

Im, K. S., & Pesaran, M. H. (2003). On the panel unit root tests using nonlinear instrumental variables. Available at SSRN 482463.

Islam, M. R., & McGillivray, M. (2020). Wealth inequality, governance and economic growth. Economic Modelling, 88, 1-13.

Jackson, T. (2019). The post-growth challenge: secular stagnation, inequality and the limits to growth. Ecological economics, 156, 236-246.

Janubova, B. (2021). Relation Between Income Inequality And Economic Growth: Case Study Of Latin America And The Caribbean. Medzinarodne vztahy (Journal of International Relations), 19(1), 31-47.

Jonathan Gimba, O., Seraj, M., & Ozdeser, H. (2021). What drives income inequality in sub‐Saharan Africa and its sub‐regions? An examination of long‐run and short‐run effects. African Development Review, 33(4), 729-741.

Kavya, T. B., & Shijin, S. (2020). Economic development, financial development, and income inequality nexus. Borsa Istanbul Review, 20(1), 80-93.

Le, T. H., & Quah, E. (2018). Income level and the emissions, energy, and growth nexus: evidence from Asia and the Pacific. International economics, 156, 193-205.

Lebdioui, A. (2021). Forever unequal? Mould-breaking strategies to reduce inequality in Latin America. LSE Latin America and Caribbean Blog.

Lessmann, C. (2013). Foreign direct investment and regional inequality: A panel data analysis. China Economic Review, 24, 129-149.

Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of econometrics, 108(1), 1-24.

Long, X., Naminse, E. Y., Du, J., & Zhuang, J. (2015). Nonrenewable energy, renewable energy, carbon dioxide emissions and economic growth in China from 1952 to 2012. Renewable and Sustainable Energy Reviews, 52, 680-688.

Luo, W., & Xie, Y. (2020). Economic growth, income inequality and life expectancy in China. Social Science & Medicine, 256, 113046.

Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics, 61(S1), 631-652.

Michálek, A., & Výbošťok, J. (2019). Economic growth, inequality and poverty in the EU. Social Indicators Research, 141(2), 611-630.

Michálek, A., & Výbošťok, J. (2019). Economic growth, inequality and poverty in the EU. Social Indicators Research, 141(2), 611-630.

Muinelo‐Gallo, L., & Roca‐Sagalés, O. (2011). Economic growth and inequality: the role of fiscal policies. Australian Economic Papers, 50(2‐3), 74-97.

Neal, T. (2014). Panel cointegration analysis with xtpedroni. The Stata Journal, 14(3), 684-692.

Ozturk, I., Aslan, A., & Kalyoncu, H. (2010). Energy consumption and economic growth relationship: Evidence from panel data for low and middle income countries. Energy Policy, 38(8), 4422-4428.

Pan-Long, T. (1995). Foreign direct investment and income inequality: Further evidence. World Development, 23(3), 469-483.

Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and statistics, 61(S1), 653-670.

Pedroni, P. (2001). Purchasing power parity tests in cointegrated panels. Review of Economics and statistics, 83(4), 727-731.

Pham, N. S., & Pham, T. K. C. (2020). Effects of foreign aid on the recipient country’s economic growth. Journal of Mathematical Economics, 86, 52-68.

Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346.

Ramachandran, R., Sasidharan, S., & Doytch, N. (2020). Foreign direct investment and industrial agglomeration: Evidence from India. Economic Systems, 44(4), 100777.

Rivera, C. G. J., & Castro, G. Á. (2013). Foreign direct investment in Mexico determinants and its effect on income inequality. Contaduría y administración, 58(4), 201-222.

Salim, R. A., Hassan, K., & Shafiei, S. (2014). Renewable and non-renewable energy consumption and economic activities: Further evidence from OECD countries. Energy economics, 44, 350-360.

Shahbaz, M., Nasreen, S., Abbas, F., & Anis, O. (2015). Does foreign direct investment impede environmental quality in high-, middle-, and low-income countries?. Energy Economics, 51, 275-287.

Wang, E. Z., & Lee, C. C. (2021). Foreign direct investment, income inequality and country risk. International Journal of Finance & Economics.

Wang, S., Li, G., & Fang, C. (2018). Urbanization, economic growth, energy consumption, and CO2 emissions: Empirical evidence from countries with different income levels. Renewable and Sustainable Energy Reviews, 81, 2144-2159.

Westerlund, J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and statistics, 69(6), 709-748.

Wooldridge, J. M. (1991). On the application of robust, regression-based diagnostics to models of conditional means and conditional variances. Journal of econometrics, 47(1), 5-46.

Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data MIT press. Cambridge, MA, 108(2), 245-254.

Wu, J. Y., & Hsu, C. C. (2012). Foreign direct investment and income inequality: Does the relationship vary with absorptive capacity?. Economic Modelling, 29(6), 2183-2189.

Xu, C., Han, M., Dossou, T. A. M., & Bekun, F. V. (2021). Trade openness, FDI, and income inequality: Evidence from sub‐Saharan Africa. African Development Review, 33(1), 193-203.

Yang, F., Zhang, S., & Sun, C. (2020). Energy infrastructure investment and regional inequality: Evidence from China's power grid. Science of The Total Environment, 749, 142384.

Yang, X., Minford, P., & Meenagh, D. (2021). Inequality and Economic Growth in the UK. Open Economies Review, 32(1), 37-69.