Impact of Foreign Direct Investment on Income Inequality: The Case of Kosovo

Foreign direct investment (FDI) is often seen as a key driver of economic growth and development, but its impact on income distribution remains still inconclusive. Thus, this served as a motivation to examine how foreign direct investment (FDI) influences income inequality in Kosovo, a country with a young population and high unemployment that shapes its economic and social patterns. The study focuses on the period from 2009 to 2019, using a Vector Error Correction Model (VECM) to explore the long-term relationship between FDI and income inequality, measured by the Gini coefficient. The findings reveal that FDI inflows have a significant impact on income inequality in Kosovo. This research tries to fill the gap in the literature by analyzing Kosovo’s unique socioeconomic, political, and demographic context. The results provide insights for policymakers seeking strategies to attract investment and promote economic growth while addressing income disparities.