Impact of FDI on Income Inequality in Pakistan

Abstract

The study attempts to find out the impact of foreign direct investment on income inequality in Pakistan. It takes foreign direct investment, government expenditure on health and education and gross domestic product growth rate as independent variables and GINI coefficient as dependent variable. ADF, PP, NgPerron and Zivot-Andrews Unit root tests are used to find the unit root problem. ARDL and its error correction model are used to find the long run and short run relationships. The study finds the long run and short run relationships in the model. Foreign direct investment has a positive impact on GINI coefficient. So, foreign direct investment is responsible in increasing the income inequality in Pakistan. Government expenditure on health and education has a negative relationship with income inequality. Economic growth has an insignificant impact on income inequality.