Democratic persistence and inequality: The role of foreign direct investments

While democracy is generally believed to reduce inequality, this study argues that democratic persistence, accounting for both the length and quality of democracy, increases income inequality through foreign direct investment (FDI). With institutions such as property rights protection in place, it promotes the inflow of foreign capital. FDI in turn pushes up income inequality by, among other things, the creation of a small sector of high-income earners in the market. The influence accrued by such capital on politics might also exacerbate the situation. These arguments are supported empirically in 118 countries from 1970 to 2008. The results are also robust to a series of checks. Copyright © 2015 Springer Science+Business Media New York.