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A generalized empirical model of corruption, foreign direct investment, and growth

Listed author(s):
  • Delgado, Michael S.
  • McCloud, Nadine
  • Kumbhakar, Subal C.

Who really wins from foreign direct investment (FDI) and by how much? Should winners care about corruption? Building on evidence of heterogeneity in the FDI-growth relationship, we propose a semiparametric model that allows corruption to influence the relationship between the conditioning variables and GDP growth, parameter heterogeneity of unknown form, and the use of instrumental variables. We find evidence that corruption has a sizeable nonlinear role in the FDI-growth relation, weakening the effectiveness of FDI at improving growth rates in many developing countries. Developing countries with insignificant or low returns to FDI may benefit substantially from reducing corruption.

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File URL: http://www.sciencedirect.com/science/article/pii/S0164070414001141
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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 42 (2014)
Issue (Month): C ()
Pages: 298-316

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Handle: RePEc:eee:jmacro:v:42:y:2014:i:c:p:298-316
DOI: 10.1016/j.jmacro.2014.09.007
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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