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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