The relationship between foreign direct investments and income inequality: the experience of turkey

Foreign direct investment (FDI), rapidly increasing with globalization, enables technological development and integration with international markets on the one hand and affects many macroeconomic variables such as growth, employment and income inequality from different frameworks on the other hand. FDI is decisive in income inequality through labor markets. FDI, which is concentrated especially in technology intensive sectors, leads to wage inequalities with increasing need for skilled labor, thus deepening existing income inequalities. However, in some cases, it can reduce income disparities between lower, middleincome households and high income households by reducing the difference in profits and wages between labor and employers. Within this framework, the final impact of FDI varies depending on many parameters. This study aims to investigate the effect of FDI on income inequality in the period of 1974-2015 in Turkey. The data were obtained using bound cointegration technique (ARDL) which includes Gini index as a dependent variable and as well as FDI, public expenditure, inflation and commercial openness as an independent variable The results indicate that FDI increases income inequality in the long run.