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Corruption and Foreign Direct Investment:What kind of relationship is there?

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Author Info

  • José Manuel Martins Caetano

    ()
    (Department of Economics, University of Évora)

  • António Caleiro

    ()
    (Department of Economics, University of Évora)

Abstract

Globalization and technological innovations create investment opportunities for firms worldwide. In fact, while firms pursue foreign direct investment (FDI) opportunities on a global basis, countries compete to attract these flows. Investment decisions by firms depend on complex and distinct factors. In particular, in the case of foreign investment one of these factors relates to the perception that investors have about the level of risk and/or corruption (or transparency) that characterises countries. Recent studies suggest that corruption negatively impacts on FDI and may act as a disincentive to investment. By using information for 97 countries, concerning inward FDI performance and perceived level of corruption, this paper intends to analyse how corruption influences on the FDI. Given that a certain level of perceived corruption can, in fact, be subject to different subjective evaluations by investors, the paper uses a fuzzy logic approach in order to determine conceivable clusters in the FDI-corruption space. The use of fuzzy clustering techniques reveals the existence of two well-defined clusters: one is formed by high-level corruption countries, where, indeed, corruption is negatively correlated, in a significant way, with FDI; the other is formed by low-level corruption countries, where the influence of corruption on FDI is not so evident.

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File URL: http://hdl.handle.net/10174/8434
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Bibliographic Info

Paper provided by University of Évora, Department of Economics (Portugal) in its series Economics Working Papers with number 18_2005.

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Length: 21 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:evo:wpecon:18_2005

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Keywords: Corruption; Foreign Direct Investment; Fuzzy Clustering;

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Cited by:
  1. Karpaty, Patrik & Tingvall, Patrik Gustavsson, 2011. "Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?," Working Paper Series in Economics and Institutions of Innovation 243, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  2. Tingvall, Patrik, 2011. "Dynamic Effects of Corruption on Offshoring," Ratio Working Papers 182, The Ratio Institute.
  3. Heyman, Fredrik & Gustavsson Tingvall, Patrik, 2012. "The Dynamics of Offshoring and Institutions," Working Paper Series 919, Research Institute of Industrial Economics.
  4. Rahim M.0 Quazi, 2014. "Corruption and Foreign Direct Investment in East Asia and South Asia: An Econometric Study," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 231-242.

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