Foreign Direct Investment and Income Inequality in Mexico, 1990–2000

Abstract

In this article we explore the relationship between the investments of multinational corporations~foreign direct investment! and income inequality in Mex-ico+ We argue that Mexico's liberalization of foreign direct investment~FDI! inflows in the 1990s provides a natural experiment to test how FDI affects income inequality in a middle-income country+ We use an instrumental variables approach as our identification strategy to mitigate problems of endogeneity and omitted variable bias+ In an empirical test of the determinants of changes in income inequality from 1990 to 2000, we find that increased FDI inflows are associated with a decrease in income inequality within Mexico's thirty-two states+ The authors would like to thank

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