Advanced Search
MyIDEAS: Login to save this article or follow this journal

Foreign direct investment, financial markets, and political corruption

Contents:

Author Info

  • Shady Kholdy
  • Ahmad Sohrabian
Registered author(s):

    Abstract

    Purpose – The purpose of this paper is to investigate whether foreign direct investment (FDI) can stimulate financial development in countries with corrupt dominant élites. Financial markets have not been expanded in many developing countries despite their proven positive effect on economic growth. Although three voluminous and parallel lines of research investigate the impact of financial markets, FDI, and political corruption on economic growth, no research up to now has examined the combined effect of foreign investment and corruption on financial development. Design/methodology/approach – To investigate the causal links, a multivariate Error Correction Model (ECM) is applied on a sample of 22 developing countries, over the period of 1976-2003. Findings – Overall, the study provides some preliminary evidence that FDI may jump-start financial development in developing countries. Furthermore, the results indicate that most of the causal links are found in developing countries which experience a higher level of corruption in the form of excessive patronage, nepotism, job reservations, “favor-for-favors”, secret party funding, and suspiciously close ties between politics and business. Research limitations/implications – The study, however, does not provide any evidence that FDI can reduce political corruption. Much additional theoretical and empirical research is needed to explore whether FDI can influence political and economic traditions and stimulate financial markets. Originality/value – The study is the first empirical attempt to examine the causal link between FDI and financial markets in interaction with political corruption.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=1227244424FB56C39B8398A71E866623?contentType=Article&contentId=1751503
    Download Restriction: Cannot be freely downloaded

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

    Volume (Year): 35 (2008)
    Issue (Month): 6 (November)
    Pages: 486-500

    as in new window
    Handle: RePEc:eme:jespps:v:35:y:2008:i:6:p:486-500

    Contact details of provider:
    Web page: http://www.emeraldinsight.com

    Order Information:
    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
    Email:
    Web: http://www.emeraldinsight.com/jes.htm

    Related research

    Keywords: Corruption; Financial markets; International investments;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Simplice A Asongu, 2013. "How has politico-economic liberalization affected financial allocation efficiency? Fresh African evidence," Economics Bulletin, AccessEcon, vol. 33(1), pages 663-676.
    2. Soumaré, Issouf & TCHANA TCHANA, Fulbert, 2011. "Causality between FDI and Financial Market Development: Evidence from Emerging Markets," MPRA Paper 31328, University Library of Munich, Germany.
    3. Simplice Asongu, 2014. "Financial development dynamic thresholds of financial globalization: Evidence from Africa," Journal of Economic Studies, Emerald Group Publishing, vol. 41(2), pages 166 - 195, March.
    4. Gohou, Gaston & Soumaré, Issouf, 2012. "Does Foreign Direct Investment Reduce Poverty in Africa and are There Regional Differences?," World Development, Elsevier, vol. 40(1), pages 75-95.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eme:jespps:v:35:y:2008:i:6:p:486-500. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.