Title: The process of income inequality development from foreign direct investment in developing countries: a system dynamics approach

Authors: Pard Teekasap

Addresses: Faculty of Business Administration, Thai-Nichi Institute of Technology, 1771/1 Pattanakarn Road, Suanluang, Bangkok, 10250, Thailand

Abstract: This paper studies the development process of an income inequality from the foreign direct investment (FDI) in developing countries using system dynamics modelling approach. This study models the country into two regions with separated economic situation but people can move across the region. FDI selects the investment location based on the operating cost. The results show that when one region can attract more FDI than another region, the wages of the workers in that region will increase and more people will relocate to that region, which creates income inequality. However, when the unemployment rate is low, the wages of both regions will increase and the income inequality drops. The policy supporting worker relocation can reduce the income inequality but the wages are also reduced.

Keywords: foreign direct investment; FDI; income inequality; Kuznets curve; system dynamics; developing countries; economic process; unemployment rate; policy analysis; worker relocation; modelling; investment location; wages.

DOI: 10.1504/IJPMB.2014.060404

International Journal of Process Management and Benchmarking, 2014 Vol.4 No.2, pp.127 - 144

Published online: 13 Apr 2014 *

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