Nexus between Foreign Direct Investment, Economic Growth, and Income Inequality: An Analysis from South Asian Countries

Abstract

In Asian economies, the relationship between misery index, foreign direct investment, human development, and income inequality often follows a non-linear, inverted U-shape. While global integration initially worsens income disparities by favoring skilled labor. Empirical research shows that at lower stages of globalization, inequality rises. However, past a certain developmental and institutional threshold, further integration and foreign direct investment help reduce income disparity. Emphasizing the inequality issue, we have analyzed the role of foreign direct investment, economic growth, human development, and misery index on income inequality in South Asian countries. For this, data have been used from 1997 to 2023. Regression result shows that foreign direct investment and the misery index have increased income inequality in these countries. However, economic growth seems to be lessening income inequality in South Asian countries. Finally, human development also tends to increase income inequality. On the basis of the results, it is suggested that more educational and health facilities should be provided to the public in these countries to reduce income inequality. A more stable environment should be provided to attract more domestic and foreign investment for having more growth and less income inequality. Strategies should be made to enhance economic growth, which helps in lessening income inequality.