Host country corruption level and Foreign Direct Investments inflows

Abstract

This paper investigates the effects of corruption on Foreign Direct Investment (FDI) inflows controlling other relevant determinants using a panel data approach for 45 countries over 1997-2004. Whereas economic theory suggests that corruption should discourage FDI, many notably corrupt countries receive substantial FDI – an anomaly worthy of investigation. In common with other empirical work, we find no statistically significant impact of corruption on FDI. This suggests that policies designed to attract additional foreign FDI should focus on other determinants of investment rather than on the intractable problem of reducing the level of corruption.