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Dissertation Chapters | Economics | India | Volume 12 Issue 8, August 2023 | Popularity: 5.2 / 10

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The Impact of Corruption on Foreign Direct Investment Inflows in Developing South Asia

Anandita Thakar

Abstract: This paper studies the unilateral effect of corruption on foreign direct investment inflows in developing South Asian countries between 1995-2019. Using a fixed effects approach, the paper aims to answer 2 main research questions. Primarily, it identifies the comprehensive impact and importance of corruption on FDI inflows by employing additional relevant control variables that account for region-specific advantages. It then extends analysis by studying interactional effects of locational determinants representing institutional and policy factors with the corruption variable in determining the corruption-FDI inflow relationship. The primary results suggest that corruption plays a negative, yet insignificant role towards FDI inflows in the host countries where economic and human capital factors are most significant determinants in attracting and deterring FDI respectively. Role of institutional quality on the overall relationship show mixed results of size and significance, but place emphasis on bureaucracy and lack of institutional transparency as an important consideration for foreign investors. Overall, Institutional improvement lowers corruption levels to change the role of corruption to a "helping hand" over time, and institutional policies raise corruption levels to change the role of corruption into a "grabbing hand" for FDI over time.

Keywords: Corruption, FDI, Foreign Direct Investment, South Asia

Edition: Volume 12 Issue 8, August 2023

Pages: 296 - 312

DOI: https://www.doi.org/10.21275/SR23710142804

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