ANALYSIS OF THE RELATIONSHIP BETWEEN GROSS DOMESTIC PRODUCT, FOREIGN DIRECT INVESTMENTS AND INCOME INEQUALITY IN ROMANIA OVER THE PERIOD 1990-2020

The present study aims to confirm the existence of a non-linear association between economic growth, foreign direct investment (FDI) and income inequality in Romania, over the period of 1990 to 2020. Romania’s macroeconomic output expressed through the Gross Domestic Product per capita has registered a continuous growth trend in the analysed period of time. Income distribution expressed through the GINI index registered also an ascending trend dynamic, while foreign direct investment showed an oscillating evolution. Using the Ordinary Least Square (OLS) method to estimate the impact of FDI and economic growth on income inequality we revealed that the relationship between FDI and income inequality is non-linear, namely quadratic. In the estimated regression equation the sign of FDI squared coefficient is negative, confirming the existence of a U-inverted curve. This suggests that the income gap grows in a first stage, until a threshold in economy is achieved. After this maximum, the income gap could follow a decreasing trend with increasing values of FDI. We found also that economic growth expressed by the dynamics of GDP per capita contributed to the extension of income inequality in Romania for 1990 to 2020. The non-linear model is statistically validated; tests for heteroskedasticity, autocorrelation and normal distribution of errors are performed. Policy implications in the specific case of the Romanian economy are also included, as follows: fiscal measures for supporting FDI inflows, effective channels enabling FDI to have effects on reducing income inequality, increase of FDI absorptive capacity and directing FDI to specific economic sectors.