Foreign Direct Investment and Income Inequality in Southeast Asia

The aim of this study is to evaluate the relationship between foreign direct investment (FDI) and income distribution in the host country. After reviewing the extant literature and providing background knowledge, this thesis conducts a panel cointegration study which analyzes whether FDI has a non-linear impact on income inequality in seven selected Southeast Asian countries over the period 1990 to 2013. Since it finds evidence for panel cointegration using the Pedroni tests, the thesis utilizes the group-mean fully modified ordinary least squares (FMOLS) procedure to generate long-run estimates that are unbiased and consistent. The results confirm the hypothesis that FDI tends to raise income inequality in the short run but reduce it in the long run. The estimates also suggest that this shift takes place relatively quickly, hence supporting pro-globalization claims that FDI is more beneficial than harmful