Foreign Direct Investment and Income Inequality in Developing Countries: A System Dynamics Approach

Abstract

This paper studies the relationshipbetweenforeign direct investment (FDI) and income inequality in developing countries. System dynamics method is used to analyze the dynamic of income inequality which is not covered in the previous literature. The results indicate that the Kuznets inverse-U curve is not symmetrical. In addition, unemployment rate plays a major role in determining income inequality.