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The Impact of FDI on the Poorby Nita Rudra and
Siddharth Joshi
Discussion by James Raymond VreelandGeorgetown University
Globalization and the Politics of Poverty and Inequality Conference
January 4-6, 2011 1
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Plan
1. “Production of knowledge”
2. GDP/capita as a measure of welfare
3. FDI & the poor
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1) The “production of knowledge”
How a paper becomes a publication( http://www.schooltube.com/video/fcde4d15a9276c9a09d3/ )
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How does an idea get into your textbooks?I. Get an idea, write a paper
II. Present the paper
1. Share informally with colleagues
2. Present at conferences (small & large)
III. Revise, revise, revise
IV. Send to a journal – 3 anonymous reviewers
1. Reject • return to step III, send to a new journal
2. Revise & Resubmit • return to step III, resubmit
3. Accept • polish, return to step I
• Time to publication? – Lim paper: March 2010 – January 2013
• Time to a book? – 1998-2003, 2006-2014
• Time to a textbook?... 5
2) GDP/capita as a measure of welfare
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GDP/capita as a measure of welfare
• Drawbacks
– Ignores income distribution
– Ignores other factors:
• Health
• Education
• Freedom
• Others?
• Advantages
– Easier to measure than distribution
– Highly correlated with many other factors we care about
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How to measure GDP/capita
• Exchange rate (“real”)
• Purchasing Power Parity (PPP)
• Compare ranking: – http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita– http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
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3) FDI and the poorhttps://gushare.georgetown.edu/mortaracenter/Nita%20Rudra1.mp3
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Contributions• Paper shows how economic development can be bad for the poor
• FDI increases local competition for scarce resources
• FDI is bad for the poor - lowers access to clean water
– Especially if there is high income inequality
• Methods: 1. Case study
2. Panel study of India
3. Country cross-section
• PLUS:
– Creative ways of measuring the dependent variable
– The IPE of ADD
– FDI (p31) 10
http://www.offsetwarehouse.com/about-us/why-buy-eco-textiles.html https://www.flickr.com/photos/barefootcollege/190584743/
http://www.ipna-online.org/fundraising/rationale/ http://rehydrate.org/shows/acute-diarrhoeal-diseases.htm 11
My main question:
• Why is this a story of FOREIGN investment?
• Note: insignificant effect of economic growth suggests FDI is special
• Test for INVESTMENT in general?
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Mechanism: inequality or institutions?
• At times in the paper:
– “institutional environment”
• But democracy is not significant
• Story seems to be:
– Governments respond to pressure groups REGARDLESS of institutional environment
– If the middle class is strong, water is protected
– With high income inequality, owners of capital prevail and water quality declines for the poor
– Democracy/dictatorship does not matter
• In terms of our class: Is it interests and/or institutions?13
Are there further connections between FDI and income inequality?
• Does FDI go to places with more income inequality?
• Does FDI cause income inequality?
• What might be the implications of these questions for the Rudra & Joshi study?
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Net impact of FDI on the poor?
• FDI may raise– Income– Tax base
• FDI lowers access to water
• So, what is the net impact on the poor?
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Take aways:
• How an idea becomes a paper, becomes a publication, becomes “knowledge”
• How to measure social welfare – pros and cons of GDP/capita
• PPP
• How FDI can hurt the poor (uses up their water!)
• “Progress” can leave the poor behind… even making them worse-off
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Thank you
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Quick methods suggestion
• Fixed effects in a cross-section:
y(i,t)= a(i) + b’x(i,t) + e(i,t)
y(i,t-1)= a(i) + b’x(i,t-1) + e(i,t-1)
Δy(i)= b’ Δx(i) + Δe(i)
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