This report aims to understand the relationship between inward FDI and income inequality in Latin American countries. Does FDI lead to a narrowing of income inequality, as would be expected on the basis of traditional trade models, and do the effects differ by country? A second objective has been to examine the role of FDI policy in shaping the relationship between FDI and income inequality in Latin America. Do different FDI policies have different effects on income inequality? Can and should FDI policy be used to target income inequality? The research has found that FDI tends to increase wage inequality in Latin America. FDI raised real wages of skilled workers more than wages of less skilled workers in Chile, while it lowered real wages of skilled workers less than wages wages of less skill workers in Bolivia. Appropriate policies to improve the distributional impact of FDI include good quality and appropriate education and training and linkage promotion between multinationals and domestic firms.
Dirk Willem te Velde