The triptych migration-inward FDI-inequality in South Asian countries: How much do governance and institutions matter?

Abstract

The present paper aims: on the one hand, to examine the existence of an FDI transmission channel through which migration indirectly affects inequality in South Asia; and on the other hand, to investigate the impact of FDI inflows on inequality by zooming in on the role of governance in determining the inequality effect of FDI in South Asian countries over the period 1996–2012 using static and dynamic panel data models. The main findings indicate that migration displays a significant positive impact on FDI inflows in six South Asian countries, and this is consistent with theory, that highlighted the intrinsic role played by migration in paving the way for unrestrained FDI flows from developed destination countries to South Asian countries of origin. On the other side, increased FDI inflows serve to further exacerbate inequalities in the region. The results also show that the increase in public expenditure on education has a prominent inequality-reducing effect. Likewise, governance displays a significant negative impact on inequality in South Asian countries. It is also revealed that the combined effect of FDI inflows and governance is effective in reducing inequality.

Key words:

• Migration
• FDI
• inequality
• governance
• South Asia

JEL Classification Numbers:

• D31
• D63
• F21
• O15
• O43
• O53