Does Foreign Direct Investment Exacerbate or Alleviate Income Inequality in Vietnam? Empirical Evidence in Vietnam Provinces

ABSTRACT This paper aims to examine the Foreign direct investment (FDI) effect on household income equality in Vietnam. The authors applied the panel data regressions including fixed effect model and quantile model for all provinces of Vietnam from 2010 to 2022. The empirical results show that foreign direct investment can have both positive and negative effects on income inequality. Foreign direct investment may not have a direct impact on each specific income group, but it can alleviate income inequality between groups in the short term. Moreover, foreign direct investment reduces income inequality in high‐income groups, but increases income inequality between groups. The authors find that ensuring social equity in general and reducing income inequality in particular play an important role in stabilizing society, leading to sustainable development, especially for developing countries like Vietnam. Therefore, this paper suggests that foreign direct investment attraction and utilization policies need to be linked to social security policies that reduce income inequality.