The question of whether gender inequality hinders or helps the integration of countries into the international division of labor has received only scant attention in the empirical literature. Some evidence exists on the links between gender inequality and trade.
Matthias Busse and Christian Spielmann (2006) find that wage inequality is positively associated with comparative advantage in labor-intensive exports, whereas inequality in terms of labor market participation and education is negatively related with such exports. According to Stephanie Seguino (1997), wage inequality may have contributed to the export success of countries such as South Korea. As concerns the countries’ attractiveness for foreign direct investment (FDI), however, the role of gender inequality has been largely ignored so far.
This is fairly surprising in the light of the fierce international competition for FDI. Policymakers are falling over themselves in enticing foreign investors, in the hope that FDI inflows would induce higher growth and employment. Yet, it is still open to debate what actually drives FDI inflows. In particular, the fairly large literature on FDI determinants has generally been gender-blind (Elissa Braunstein 2006:1).
This paper attempts to fill this gap by assessing the role of gender disparity with respect to the host countries’ attractiveness for FDI. The focus will be on education-related gender disparity and its effects on FDI inflows. Opposing hypotheses in this regard call for empirical analyses. We estimate a standard gravity model on bilateral FDI flows which is augmented by educational variables, including different measures of gender inequality in education. We argue that it is crucially important to cover as many host countries of FDI as possible to avoid a sample selection bias.
Our results clearly reject the view that foreign investors favor locations where education-related gender disparities may offer cost advantages. Rather, we find that gender disparity discourages FDI inflows. However, the strength of this relation depends on the level of education, being most pronounced with respect to secondary education. Additional robustness tests reveal that the discouraging effect of gender disparity is somewhat weaker for FDI in developing host countries, and it turns insignificant when considering only FDI flows from developing source countries.
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