NDLI: Parameter heterogeneity in the foreign direct investment-income inequality relationship: a semiparametric regression analysis

Content Provider	Springer Nature Link
Author	Deng, Wen Shuenn Lin, Yi Chen
Copyright Year	2012
Abstract	This article uses the generalized likelihood ratio test to formally test whether the relationship between foreign direct investment (FDI) and income inequality varies with the level of human capital and then uses a flexible semiparametric smooth coefficient partially linear model to provide estimates of the inequality effect of FDI that are specific to the level of human capital in a country. Based on the data of 102 countries over the period 1970–2007, we find the following. First, there exists substantial heterogeneity in the inward FDI-inequality relationship. Inward FDI is inequality-ameliorating in low-income countries where human capital is scarce but is inequality-raising in middle- and high-income countries where human capital is abundant. Second, contrary to the conventional mindset, outward FDI has no significant impact on inequality in low-and high-income countries. Nevertheless, outward FDI is inequality-raising in middle-income countries with low levels of human capital. Our results demonstrate that accounting for parameter heterogeneity is critical to identify the key mechanisms through which FDI affects inequality. Omitting parameter heterogeneity could lead to misspecification and incorrect policy prescriptions.
Starting Page	845
Ending Page	872
Page Count	28
File Format	PDF
ISSN	03777332
Journal	Empirical Economics
Volume Number	45
Issue Number	2
e-ISSN	14358921
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2012-08-24
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Foreign direct investment Income inequality Semiparametric method Smooth coefficient partially linear model Profile likelihood ratio test Generalized likelihood ratio test Econometrics Statistics for Business/Economics/Mathematical Finance/Insurance Economic Theory
Content Type	Text
Resource Type	Article
Subject	Statistics and Probability Social Sciences Economics and Econometrics

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