Effect of FDI on Income Inequality in Nigeria : Does Trade Openness Matter?

The paper examines the effect of FDI and its interaction with trade openness on income inequality in Nigeria. In doing this, the DOLS estimator is employed to analyse annual time series data covering the period from 1981 to 2015. The study finds that FDI inflows positively affect income inequality. However, the interaction between FDI and trade openness negatively affects income inequality suggesting that greater openness of the economy to international trade would engender reduction of income inequality caused by FDI in the country. Further evidence from the study are that financial system development and economic development are crucial for reduction of income inequality in the country. Based on these, it is recommended that barrier to flow of trade should be cautiously relaxed, the financial system should be developed and effort should be made by the government to set the economy on the path of sustainable development