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

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  • Delgado, Michael S.
  • McCloud, Nadine
  • Kumbhakar, Subal C.

Abstract

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.

Suggested Citation

  • Delgado, Michael S. & McCloud, Nadine & Kumbhakar, Subal C., 2014. "A generalized empirical model of corruption, foreign direct investment, and growth," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 298-316.
  • Handle: RePEc:eee:jmacro:v:42:y:2014:i:c:p:298-316
    DOI: 10.1016/j.jmacro.2014.09.007
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    Cited by:

    1. JUDE, Cristina & LEVIEUGE, Gregory, 2013. "Growth effect of FDI in developing economies: The role of institutional quality," MPRA Paper 49321, University Library of Munich, Germany.
    2. Antonio Musolesi & Michel Simioni & Georgios Gioldasis, 2018. "Nonparametric estimation of international R&D spillovers," Working Papers 2018037, University of Ferrara, Department of Economics.
    3. repec:bla:worlde:v:40:y:2017:i:4:p:715-742 is not listed on IDEAS
    4. Subal C. Kumbhakar & Kai Sun & Rui Zhang, 2016. "Semiparametric Smooth Coefficient Estimation of a Production System," Pacific Economic Review, Wiley Blackwell, vol. 21(4), pages 464-482, October.
    5. Hichem Saidi & Khaled Guesmi & Houssem Rachdi, 2016. "Capital Account Liberalization, Financial Development and Economic Growth in Presence of Structural Breaks and Cross-Section Dependence," Economics Bulletin, AccessEcon, vol. 36(4), pages 2225-2236.
    6. Georgios Gioldasis & Antonio Musolesi & Michel Simioni, 2018. "Nonparametric estimation of international R&D spillovers," SEEDS Working Papers 0318, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Mar 2018.
    7. repec:spr:empeco:v:53:y:2017:i:4:d:10.1007_s00181-016-1173-6 is not listed on IDEAS
    8. Wako, Hassen Abda, 2018. "Foreign direct investment in sub-Saharan Africa: Beyond its growth effect," MERIT Working Papers 013, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    9. Mohamed Ilyes Gritli & Fatma Marrakchi Charfi, 2016. "Capital Account, Institutional Quality, And Economic Growth In Mena Countries: A Gmm Approach," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 1-23, December.
    10. Hakimi, Abdelaziz & Hamdi, Helmi, 2015. "How Corruption affect Growth in MENA region? Fresh Evidence from a Panel Cointegration Analysis," MPRA Paper 63750, University Library of Munich, Germany.

    More about this item

    Keywords

    Foreign direct investment; Corruption; Parameter heterogeneity; Economic growth; Nonparametric method of moments; Instrumental variables;

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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