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Does corruption matter for sources of foreign direct investment?

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Abstract

The paper provides a cross-country empirical analysis of the impact of corruption on foreign direct investment flows. The gravity model augmented with joint effects of corruption in the origin and destination countries determines differentiated patterns of investment flows between countries with various levels of control of corruption. The estimates point towards greater investment flows between countries with good control of corruption. Moreover, if control of corruption in the destination country improves, investment flows from cleaner countries rise more strongly than those from countries with a higher incidence of corruption. The resulting shift towards a greater share of investment from low-corruption countries may further reinforce the strengthening of economic and political institutions that keep corruption in check.

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Notes

  1. See, for instance, http://www.bbc.co.uk/news/world-latin-america-17290626.

  2. This is calculated as one standard deviation (1.07) times the difference between control of corruption scores in the respective countries (1.48) times the estimated coefficient on the interaction term in the fixed-effect specification (0.2).

  3. Similar robustness checks for estimations based on the Eurostat data are available upon request.

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Acknowledgements

The authors are grateful to Erik Berglöf, Ralph de Haas, Jeromin Zettelmeyer, Cagatay Bircan, Sergei Guriev, Yothin Jinjarak, Teodora Tsankova, Roxana Mihet, Jeffrey Mo, Ganeshan Wignaraja, the editor and the anonymous referees for valuable comments and suggestions.

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Authors and Affiliations

  1. Birkbeck, University of London, Malet St, London, WC1E 7HX, UK

    Adiya Belgibayeva

  2. European Bank for Reconstruction and Development, 1 Exchange Square, London, EC2A 2JN, UK

    Alexander Plekhanov

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  1. Adiya Belgibayeva
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  2. Alexander Plekhanov
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Correspondence to Adiya Belgibayeva.

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Appendix

Appendix

1.1 List of countries in the sample

Albania, Algeria, Angola, Antigua and Barbuda, Argentina, Armenia, Aruba, Australia, Austria*, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belgium*, Belize, Benin, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Bulgaria*, Burkina Faso, Burundi, Cabo Verde, Cambodia, Cameroon, Canada, Central African Republic, Chad, Chile, China, Colombia, Costa Rica, Croatia*, Cyprus*, Czech Republic*, Denmark*, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Estonia*, Ethiopia, Fiji, Finland*, France*, Eritrea, Gabon, Georgia, Germany, Ghana, Greece*, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Hong Kong SAR, Hungary*, Iceland*, India, Indonesia, Ireland*, Islamic Republic of Iran, Israel, Italy*, Japan*, Jordan, Kazakhstan, Kenya, Korea, Kuwait, Kyrgyz Republic, Lao P.D.R., Latvia*, Lebanon, Liberia, Libya, Lithuania*, Madagascar, Malawi, Malaysia, Maldives, Mali, Malta*, Marshall Islands, Mauritania, Mauritius, Mexico, Moldova, Mongolia, Morocco, Mozambique, Namibia, Nepal, Netherland*s, New Zealand, Nicaragua, Niger, Nigeria, Norway*, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland*, Portugal*, Qatar, Republic of Congo, Romania*, Russian Federation, Rwanda, Saint Kitts and Nevis, Samoa, Saudi Arabia, Saint Lucia, Senegal, Seychelles, Sierra Leone, Singapore, Slovak Republic*, Slovenia*, Solomon Islands, South Africa, Spain*, Sri Lanka, Sudan, Suriname, Swaziland, Sweden*, Switzerland*, Tajikistan, Tanzania, Thailand, The Bahamas, The Gambia, Togo, Trinidad and Tobago, Tunisia, Turkey*, Uganda, Ukraine, United Arab Emirates, United Kingdom*, United States*, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, Zambia, Zimbabwe.

Note: Countries marked with * are reporter countries in the Eurostat database.

1.2 Correlation coefficients

See Table 6.

Table 6 Pairwise correlation coefficients for selected variables
Full size table

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Cite this article

Belgibayeva, A., Plekhanov, A. Does corruption matter for sources of foreign direct investment?. Rev World Econ 155, 487–510 (2019). https://doi.org/10.1007/s10290-019-00354-1

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