The impact of multinational companies on inequality in Western Balkan countries

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PurposeThe purpose of this study is to investigate the impact on income distribution from foreign investment and open trade. The research highlights the impact of multinational enterprises (MNEs) on inequality in Western Balkan (WB) countries from 2007 to 2019. The study seeks to answer a critical question: how do multinational corporations affect income distribution?Design/methodology/approachThe study uses different techniques such as two-stage least squared, fixed and random effect estimators and generalised method of moments (GMM). The data was gathered from the United Nations Development Programme, World Bank Indicators (WB) and Slot’s World Standardised Income Inequality Database.FindingsThe interaction of multinational companies through foreign direct investment (FDI) has a significant impact on income inequality. This research paper indicates that the effect of FDI on income inequality is significant and has a negative effect on income inequality within WB countries. The results from the GMM estimator, therefore, demonstrate the hypothesis that multinational companies have a positive effect in WBs countries on reducing inequality.Originality/valueThe theoretical contribution that this paper seeks to make is by the applying of incremental changing dimension or more specifically, through expanding existing knowledge. Based on a study of the prior articles, the authors found out that the majority of the papers discussed only income inequality or economic inequality or rarely education, but none of the papers examined all classifications of inequality in one paper. This paper’s second contribution is to calculate inequality not only by the Gini coefficient but also by the human development index. The study is unique in that it is the first to assess the impact of FDI on income distribution in WB countries. The research is unique in that it attempts to shed light on the impact of multinational corporations on inequality in Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. The findings of this study will help to develop new policies, new legislation, reducing inequity and support FDIs and MNEs for governments and policymakers.