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Review of World Economics

, Volume 155, Issue 3, pp 487–510 | Cite as

Does corruption matter for sources of foreign direct investment?

  • Adiya BelgibayevaEmail author
  • Alexander Plekhanov
Original Paper

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.

Keywords

Corruption Foreign direct investment Gravity model 

JEL Classification

F21 O43 

Notes

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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Copyright information

© Kiel Institute 2019

Authors and Affiliations

  1. 1.Birkbeck, University of LondonLondonUK
  2. 2.European Bank for Reconstruction and DevelopmentLondonUK

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