The Impact of Multinational Corporations on Income Inequality in Europe

In this thesis, we investigate the impact of multinational corporations through foreign direct investments on income inequality in 39 European countries for the period 1980-2008. The main findings are that, on average, inward and outward FDI have a positive short-run effect on inequality which diminishes over time as FDI stocks accumulate. Furthermore, there are clear heterogeneous effects between different groups of European countries: low-skilled labour abundant countries see their inequality levels rise in the short run due to a low supply of high-skilled workers, whereas low-skilled workers in high-skilled labour abundant countries are adversely affected due to outsourcing as it takes time to adjust. Observing horizontal and vertical FDI, we find that horizontal FDI initiates large spill-over effects for all income groups in OECD countries as the majority of inward FDI originate from other high-income countries with advanced technologies. The results are partly robust to using alternative measures of multinational activity and inequality.