Impact of Foreign Direct Investment on Income Inequality

This assignment provides a comprehensive study of the relationship between foreign direct investment (FDI) and income inequality. It explores the effects of FDI on income distribution in different countries, including Portugal, Mauritius, and China. The analysis also examines the role of FDI in reducing poverty and promoting economic growth. Various studies and research papers are cited to support the findings, providing a nuanced understanding of the complex issues surrounding FDI and income inequality.

Analysis of the relationship between foreign
direct investment and Income inequality in
Ireland from 1990 to 2017

TABLE OF CONTENTS
RESEARCH TOPIC:.......................................................................................................................1
CHAPTER 1: INTRODUCTION....................................................................................................1
Background..................................................................................................................................1
Aim and Objectives.....................................................................................................................2
Research Question.......................................................................................................................2
Hypothesis...................................................................................................................................2
Rationale......................................................................................................................................2
Significance.................................................................................................................................3
LITERATURE REVIEW................................................................................................................3
Introduction to Literature.............................................................................................................3
Theme 1: Analysing the impacts of FDI on the income in equality in Ireland between 1990-
2017.............................................................................................................................................3
Theme 2: Analysing the relationship between FDI and income inequality.................................6
Theme 3: Analysing the factors which leads to income inequality in Ireland.............................7
Conclusion...................................................................................................................................8
RESEARCH METHODOLOGY....................................................................................................8
Limitations...................................................................................................................................9
Advantages..................................................................................................................................9
Disadvantages............................................................................................................................10
REFERENCES..............................................................................................................................11

RESEARCH TOPIC:
The relationship between foreign direct investment and income inequality in Ireland from
1990 to 2017
CHAPTER 1: INTRODUCTION
Background
Growth of an economy is dependent on factors such as inflation, foreign direct investment
balanced gross domestic production as well as adequate governmental policies. Ireland have
been denoted as a developing nation and the economic growth of the nation is comparatively
effective in compare with the other developing countries in world. Influences of foreign direct
investment will be adequate in leading the country to manage its economic issues and bring
stability for economic development, managing the per capita income as well as smooth
governing on the operational practices (P. Doh, 2018). The policies, laws, regulation and
standards have been set by the government which are in relation with protecting the nation from
outer crisis. This research will provide better understanding about foreign direct investment and
income inequality in Ireland during the period 1990 to 2017. There are huge difference in income
of the individuals in the Ireland due to inflow of FDI in the country. Income, inequality occurs
when there are difference in the level of wages of the individuals having the same piece of work
which leads to high income inequality (Irma, Indah and Nugroho, 2018). This affect the
economy of the county to the large extent so it is required to identify this factors. FDI inflow
increases the competition in the economy due to which leads to pushing down of domestic
capitalist
Thus, easing the pay of investment for the growth of small scale industries in Ireland will
be effective in balancing firm’s operational efficiencies. While many states try to attract more
FDI as possible, other focus just on the FDI that can lead to increases in the living standards and
well-being of the host country (Bermejo Carbonell and Werner, 2018). These countries, which
are looking for this sort of capital investment, want to establish advantageous economic, legal
and business environment for possible investors (Brada and et.al., 2019). Supporting and
encouraging FDI can make more jobs and have other positive effects for national economies
(Nogueira and Afonso, 2018). Therefore, many governments established investment promotion
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agencies (IPA) specially to promote FDI. It is forecasted that 81 percent of the states around the
earth have found IPA to be more successful in attracting FDI.
Aim and Objectives
Aim: “To analyse the relationship between foreign direct investment and income
inequality in Ireland from 1990 to 2017”
Objectives:
 To analyse the impacts of FDI on the income in equality in Ireland between 1990-2017.
 To analyse the relationship between FDI and income inequality
 To analyse the factors which leads to income inequality in Ireland
Research Question
What is the impact of foreign direct investment (FDI) on domestic income inequality for
Ireland over the period 1990-2017?
Hypothesis
QUESTION 1: Does foreign direct investment affects wage inequality?
Null hypothesis (H0): There is no mean relationship between foreign direct investment
and wage inequality.
Alternative Hypothesis (H1): There is a mean relationship between foreign direct
investment and wage inequality
Rationale
The reason behind selecting this topic is for making adequate ascertainment and analysis
over the issues which are being faced by the national government in managing the FDI and
balancing the rate of GDP in the nation (Janský and Palanský, 2018). This research will analyse
impacts of changes incurred in the operational practice and policy designing with a motive to
make necessary increment in the national economy (Carlos and Afonso, 2018). There have been
influences of various factors which in turn will be liable in relation with managing the
operational efficiencies that will be adequate in the operational ascertainment (Daly, 2019). The
reason behind choosing this topic is that there has been various previous research on FDI and
income inequality separately but there is less research on both of them in Ireland (Rivera and
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et.al., 2018). Moreover, there are huge difference in income in Ireland so this chosen topic will
help in better understanding about this topic.
Significance
This research project will be adequate and effective in relation with analysing the factors of
FDI which leads to income inequality in Ireland (Flaherty, 2018). This research will be helpful in
reducing the income inequality by identifying various factors which can reduce the negative
impact of FDI on income of individuals (Latief and Lefen, 2019). However, there will be
influences of various suggestion based on knowledge derived from the operational activities
(Ireland, 2018). This research will be suggestive and effective in relation with leading the
organisation to make validate analysis over current economic issues incurred in Ireland
(Morrissey and et.al., 2019).
LITERATURE REVIEW
Introduction to Literature
FDI leads poverty and income inequality in a developing country. Therefore, the present
chapter will reflect the theories, models and opinion of various authors which would be analysed
by researchers in reaching to the validated conclusion (Herzer and Donaubauer, 2018). This
chapter will determine various aspects such as impacts of changes incurred in FDI rate over the
income stability in country (Bapuji and et.al., 2018). The evaluation of various factors would
help the researchers in identifying a validated solution to the research issues.
Theme 1: Analysing the impacts of FDI on the income in equality in Ireland between 1990-2017
As introduced by Teixeira and Loureiro, (2019), foreign direct investment helps in
improving the financial condition of a nation such as bringing the large number of foreign
investors to invest in the domestic organisations. It helps them in retaining the adequate growth
and profitability through such operational aspects (Lee and Lee, 2018). It states that, there have
been increment in technology, employability skills, competition, production as well as growth.
Kwon, (2018) stated that, the influences of such economic reforms have negative impacts on
various other organisation which are operating as small business entities (Joshi and Quinn,
2018). It affects the GDP rate in the nation as the large amount of funds have been gone to the
foreign industries which are operating business in country.
According to Flaherty, (2019), Ireland is an open as well as engaged economy in relation
with having effective control over gross and value-added trade and inward investments. In
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relation with these recent reviews of OECD, which have demonstrated the country is one of the
most export orientated with almost 61% of the its domestic products and services which are
being exported. Therefore, due to such capabilities there is less influences of foreign affiliation.
Rodrik, (2018) determined that, as per analysing trade and investments practices of Ireland in
broader aspect on which it can be said that there are various partner nations which are engaged in
trade agreement with country. It includes trade partners such as United states, Switzerland and
Luxembourg who sales supplies in the Irish market.
Trade and Investment in Ireland:
Figure 1 Trade and GDP growth in Ireland
(Source : International trade, foreign direct investment and global value chains, 2017)
It has been seen that the Irish trade contracted more in the global crisis not in the Euro
crisis therefore, which have reflected the differences in the Irish trade growth and health of its
economy (Lau, Choong and Ng, 2018). There has been increment in the growth of trade and
GDP in Ireland more in 2015 and 2016. It determines that, there export growth in the economy
was around 2.4% while GDP at 5.2%. The gross export in Ireland during 2016 was amounted to
$352 b which is 130% of the GDP. However, it defines that the nation is financially as well as
productively capable or independent.
Inwards and outward investment in Ireland:
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Figure 2 Inwards and outward investment in Ireland
(Source: International trade, foreign direct investment and global value chains, 2017)
As per articulating the Ireland’s international operated trade activities where it has been
determined that FDI in equity were 285% of GDP for inwards as well as 283% of GDP in
outwards (O'Connor, Doyle and Doran, 2018). It demonstrates that FDI investment in the nation
is comparatively balanced and healthy.
Figure 3 Export and import intensity of Ireland as per OECD
(Source: International trade, foreign direct investment and global value chains, 2017)
By considering the above presented graph on which it can be said that, there have been
twice the foreign-owned businesses in Ireland as compared to the export intensive for
domestically owned firms (Khan and Nawaz, 2019). However, Ireland has been considered on
the basis of promoting the income equality and standards for everyone which achieves full
employment and provide the best quality services among public to improve the society wealth.
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Theme 2: Analysing the relationship between FDI and income inequality
As per the views of Wang and Wang, (2018), FDI affects social, environmental, labour and
distributional consequences in a country. The increase in such investment practices in a nation
which affects the balance of payments and relevant macro-economic factors however, in
accordance with such operational aspects on which social concerns are not the main concerns in
FDI system. Hyde, Vachon and Wallace, (2018) stated that, encouraging the FDI in nation on
which investors seeks for the better returns on their invested funds in country. In this case, there
have bee influences of two approaches which are required to be considered and concerned by the
organisation such as:
Correlation between FDI and Social & Environmental indicators:
It has been determined that, FDI leads a rapidly increases the rates in financially developed
nations compared to the developing. In articulating the impact of this factor on local market
which determines that there has been effective development of financial as well as education
level in a country (Quinonez, Saenz and Solorzano, 2018). Therefore, the invitation to the
technical increment in the nation affects positively on the productiveness (Foreign Direct
Investment; Income Inequality and Poverty, 2004). It defines that, people become independent
and have their own unit and techniques of performing the business activities.
Traditional and new Corporate social responsibility:
Determining the development priorities in an economy where companies tends to have
higher productive efforts and retention of profitable returns. In traditional CSR activities where,
foreign companies make voluntarily investment in the domestic companies (P. Doh, 2018).
Therefore, in the recent times as per increment in interest which have determined the new
development of CSR that tries to execute, direct and monitoring the activities held in the invested
companies. It basically due to extending the operational aspects and increasing productivity in an
organisation.
Gini Coefficient:
This is a statistical measure of distribution which have been developed to analyse the
income distribution among population. It has been analysed as per the value of coefficient range
from 0 to 1 where 0 is representing perfect equality and 1 representing perfect inequality. For
analysing the income inequality in Ireland on which implicating this technique would be
adequate and effective for the researchers.
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Theme 3: Analysing the factors which leads to income inequality in Ireland
Irma, Indah and Nugroho, (2018) sought to introduced that, there ate multiple drivers such
as taxes, public services, governmental policies, interest rate fluctuations, inflation, recession etc.
which affects the income inequality in a nation. Reforms, fluctuation and implication of new
policies of the government are the main elements which affects income inequality in a nation.
Bermejo Carbonell and Werner, (2018) argued that, in Ireland there have been influences of the
two main factors which have invited the income inequality in the nation. It defines the
concentration of income and wealth in the society. Similarly, the number of people unable to
meet their material needs at the right time. These are the factors which affects mainly in bringing
the income inequality in the economy.
As per the views of Brada and et.al., (2019), Irish economy has been determined as the
economically stable and sound which serves the equality in income. Therefore, there are certain
factors which affects the inequality in nation such as Tax, Wealth, Public services, Income,
Capacities, Family composition and Cost of goods and services. Nogueira and Afonso, (2018)
articulated that, the consideration of public messaged during the time of election must be
considered by the policy makers (Janský and Palanský, 2018). Therefore, economists and
governmental agencies makes reforms in the previous stated business operations on which there
have been impact of investment in quality public services such as health and household which
are required to be prioritised by them before tax cuts. However, changing policies and higher
taxation on income as well as corporate revenue would be the main reason in affecting the
income inequality in Ireland.
Carlos and Afonso, (2018) determined that, there have been excessive concentration of
economic resources in hands of a relatively small group of individuals. The changes in the
income as well as wealth level of people in society defines such inequality in the economy.
Therefore, people being paid on the basis of their employment, qualification as well as level of
efforts made by them. Thus, in this case it is challenging for a nation to bring the adequate
equality in income as well as revenue generated by the people in the operational aspect. Daly,
(2019) determined that, globalisation of the economy have leaded a raise in inequality of gross
market incomes in advances economies where inequality does not manifest in the same way in
each developed country. Therefore, it determines that there have bene influences of economic,
social and taxation policies which brings the inequality in the economy.
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As determined by Flaherty, (2018), increasing number of foreign firms in the country
which have determined a sudden change in the inequality. Therefore, the raise in FDI’s have
demonstrated that there would be flow of foreign money which in turn would be covered and
managed as per having adequate equality in global trends. The motive of government is for
maximising wealth, financial health as well as revenue in the stated period of time. Latief and
Lefen, (2019) stated that, if a country is unable to manage its funds inflows and outflows than
there will be chances of having inflation as well as which is ultimately resulted in income
inequality.
Conclusion
On the basis of above chapter, on which there have bene discussion based on various
economic factors which influences the income inequality in Ireland. However, literature has been
based on considering the impacts of such elements on national economy which affects income
and wealth in the society. Researcher has analysed the view point of all authors and made
effective ascertainment of main causes which drives income inequality in Ireland.
RESEARCH METHODOLOGY
There are two methods which has been considered under a research study such as qualitative
and quantitative, Qualitative research is relevant with the theoretical analysis over the research
issues (Ireland, 2018). It does not contribute any Mathematical influences as there will be main
emphasis is payable on the observations, past studies as well as stated facts in the environment.
Thus, such analysis required researcher in determining the data collection through primary and
secondary sources. Therefore, on which researcher analyse and summarise their findings to
recommend effective changes in a particular filed.
On the other side, quantitative is basically relevant with gathering the data from authentic
and reliable sources such as past records, historical values as well as current data base (Morrissey
and et.al., 2019). It allows the statically analysis over the data base which was being gathered
such as descriptive of the data base, mean, mode, median, standard deviation, correlation as well
as regression. The mathematical analysis over the database based on FDI investment in Ireland
and per capital income in economy have been analysed through Gini coefficient techniques.
The purpose of this research is to analyze the impact of FDI on GDP growth between 1990
and 2017 in Ireland. The total investment (“I”) is used as a proxy from this equation:
Y=GDP=C+I+G+NX in order to analyses the correlation between the total investment, FDI and
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GDP after the crisis period (Herzer and Donaubauer, 2018). However, in relation with such
determination on which there have been creation of hypothesis which were being studied in the
research such as:
Hypothesis
Null hypothesis (H0): There is no mean relationship between foreign direct investment
and investments.
Alternative Hypothesis (H1): There is a mean relationship between foreign direct
investment and investments
Null hypothesis (H0): There is no mean relationship between foreign direct investment
and GDP.
Alternative Hypothesis (H1): There is a mean relationship between foreign direct
investment and GDP.
Moreover, in accordance with such aspects there will be effective analysis over the
market scenario and management of operational practices with reference to make effective
operational determination (Bapuji and et.al., 2018). Along with this, the importance of Gini
Coefficient has been determined in the research study which will be used for analyzing the
impact of FDI on the economic growth in Ireland.
Limitations
The research projects and techniques which have been determined by researcher is too
narrow. Therefore, in relation with such aspects it can be said that there must be use of wider
research topic (Teixeira and Loureiro, 2019). Along with this, selecting the techniques for
analysing the issues such as Gini coefficiency which has limitations too. The proper use as well
as its interpretation is quite controversial which requires influences of the effective researcher
and policy maker.
Advantages
The main advantage of Gini coefficient is that it measures inequality in income of
economy. It does not consider the average income of other relevant variables which are
unrepresentative. Therefore, the reliability of the outcomes can be derived from analysed
outcomes (Lee and Lee, 2018). In relation with this, research study on which using this method
will be accurate and clear to determining the issues which are affecting the income inequality in
Ireland. The further decision would be made by author is more accurate and reliable and which
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will be effective in making reforms in the economy (Advantages & Disadvantages to Income
Inequality, 2017).
Disadvantages
The complexity of this technique took time and efforts to analyse the exact issues.
Therefore, it will require influences of expert economists in measuring the changes (Kwon,
2018). Therefore, defining the inequality in the income generation of Ireland which has negative
influences due to improper analysis over market conditions.
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