Income inequality and FDI nexus in Turkey: FM-OLS estimation and ARDL approach

This paper aims to explore how foreign direct investment (FDI) and other determinants impact the income inequality in Turkey in the long-run. We apply the ARDL (Autoregression Distributed Lag Model) approach which fits to estimation in small sample studies. The long-run results are also estimated by using the fully modified ordinary least squares (FMOLS) method. These methodologies, while proven to produce reliable estimates in small sample sizes, provide a check for the robustness of results. The data for the study cover years from 1970 to 2008. The empirical results indicate the existence of a cointegration relationship among the variables. The results also point to a positive impact of FDI on income inequality, which coincide other past studies.  The positive impact of FDI growth rate on income inequality is shown to be significant in the short-run but not in the long-run.