FDI and Rising Inequality

Globalisation facilitated economic integration of countries across borders to devise means and sources to fund activities to realize economic growth. And with the free flow of investments in the last decade, developing regions like South Asia displayed a consistent economic performance with substantial progress on the economic front. But despite South Asia’s rapid economic growth, issues of inequality has become a top concern for the region. Studies have highlighted the occurrence of huge gaps between the wealthy and the poor in this region. Also, inequality in wealth distribution is one dimension of the inequality concern in South Asia. Other issues of disparity relating to gender are on the rise likewise. Many research claims that globalisation and its key components like FDI might have fuelled income inequality and have also affected men and women differently creating gender imbalances in the labour market for employment, wage and other opportunities. As the countries in South Asia continue to liberalise policies to attract more and more FDI for economic gains, it was felt essential to study the relationship between FDI and inequality both from an academic and policy perspective. Many researchers have studied the impacts of FDI on inequality but the studies are mostly focused on the inequality of outcomes like income or wage inequality. The findings of the FDI and income inequality relationship is heterogeneous with diverse results in different locations and the link between FDI and inequality of opportunity is little explored. As growing inequality may also lead to reduced growth, political instability and social disharmony. The research aims to evaluate the impacts of FDI inflow on both income inequality (inequality of outcome) and gender inequality (inequality of opportunity) to explain the relationship between FDI inflow and inequality as a whole in South Asia (2005-2015). The research studied the impacts of FDI and income inequality at a country level using Gini index and UNDP’s inequality in income (%) as a measure of income inequality. The FDI and gender inequality (in employment) were deliberated at a country and a sectoral level (agriculture, industry, and service). A set of panel regressions with and without interaction terms were performed to evaluate the relationship. The outcome indicated that both the FDI-income and FDI-gender inequality relationship is a moderated causal relationship. The results suggested that the impacts of FDI on income inequality in South Asia were significant only when moderated by human capital. The moderating factors of the FDI inflow and gender inequality relationship were found to be varying across sectors. The research also finds that the income inequality situation in South Asia remains varied in the period with some countries have experienced a drop in income inequality and others have witnessed a rise. The findings of the gender inequality situation in South Asia is shocking. It discloses that the female employment in South Asia experienced a moderate drop in the period indicating that despite South Asia’s economic growth, gender inequality is gradually escalating in the labour market. A sectoral shift in female employment is observed with the agriculture sector witnessed a drop in female employment and the industry and service sector have experienced a gradual growth. But all the three sectors (Agriculture, industry, and service) in South Asia have experienced a rise in men employment (%) and a fall in the female employment (%) in the period (2005 to 2015). From the findings of the study, it appears that globalisation might have marginalized the role of women in the labour market.