Inward FDI stock and income distribution: an analysis from an income group perspective

This thesis analyses the effect of inward FDI stock on income distribution and how this effect is influenced by tax on capital. First it analyses the effect on the income shares of different income groups and thereafter on the income components capital and labour. The annual data consists of an unbalanced panel of 25 countries over the period 1980-2016. The analysis is performed by a country and time fixed effects model and an Arellano-Bond GMM model with a first-differences approach. The strongest evidence suggests that inward FDI stock contributes to an increase in income shares of the top 0.05 to the top 10 percent of the income distribution. The effect on the income shares of the middle and bottom income groups seems to depend on the specific FDI case and thus the evidence is less clear. Tax on capital dampens and in some cases even mutes the positive effect of inward FDI stock on the top income shares.