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Corruption and FDI: Does the Use of Distinct Proxies for Corruption Matter?

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  • Aurora A. C. Teixeira
  • Luís Guimarães

Abstract

The relationship between FDI and corruption/institutional quality in host countries has been widely analyzed. However, the use of distinct samples and indicators for corruption tends to hinder the interpretation and outcomes of econometric assessments. The aims of this paper are to assess the extent to which the use of distinct proxies for corruption provides diverse evidence regarding the relationship between corruption and FDI, and to assess whether controlling for other indicators of institutional quality reinforces the effect of corruption indicators on FDI inflows. In order to accomplish these goals, we estimate a set of multivariate logistic models using 96 countries over the period 2000 to 2010. The results evidence that using distinct proxies for corruption variables, as well as controlling for other types of the countries' institutional quality, generate distinct outcomes. In isolation, a country's transparency and its citizens' corruption perceptions fail to impact on FDI whereas a bribe-free environment is conducive to FDI inflows. When we control for the human, social and economic development of the countries, the impact of a transparent and bribe-free context on FDI attraction is enhanced. Overall, it is clear that in order to become a large recipient of FDI a country has to guarantee a transparent and bribe-free environment, characterized by low income taxes, high literacy rates and generalized economic freedom (own labor and property control by citizens).

Suggested Citation

  • Aurora A. C. Teixeira & Luís Guimarães, 2015. "Corruption and FDI: Does the Use of Distinct Proxies for Corruption Matter?," Journal of African Business, Taylor & Francis Journals, vol. 16(1-2), pages 159-179, January.
    • Handle: RePEc:taf:wjabxx:v:16:y:2015:i:1-2:p:159-179
    DOI: 10.1080/15228916.2015.1027881
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    References listed on IDEAS

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    1. Drabek, Zdenek & Payne, Warren, 2002. "The Impact of Transparency on Foreign Direct Investment," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 777-810.
    2. repec:zbw:wtowps:99-02 is not listed on IDEAS
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    Cited by:

    1. William Bekoe & Talatu Jalloh & Wassiuw Abdul Rahaman, 2021. "Corruption and Foreign Direct Investment Inflows: Evidence from West Africa," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 14(3), pages 7-25, December.
    2. Hammed Oluwaseyi Musibau & Suraya Mahmood & Agboola Yusuf Hammed, 2017. "The Impact of Foreign Capital Inflows, Infrastructure and Role of Institutions on Economic Growth: An Error Correction Model," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 3(4), pages 35-49, December.
    3. Aurora A. C. Teixeira & Ana Sofia Loureiro, 2019. "FDI, income inequality and poverty: a time series analysis of Portugal, 1973–2016," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 18(3), pages 203-249, October.
    4. Gemechu Abdissa & Abebe Ayalew & Anna Dunay & Csaba Bálint Illés, 2022. "Determinants of Sustainable Growth of SMEs in Developing Countries: The Case of Ethiopia," Economies, MDPI, vol. 10(8), pages 1-16, August.
    5. Rahmouni, Mohieddine, 2023. "Corruption and corporate innovation in Tunisia during an economic downturn," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 314-326.
    6. Arega Shumetie & Mulugeta Damie Watabaji, 2019. "Effect of corruption and political instability on enterprises’ innovativeness in Ethiopia: pooled data based," Journal of Innovation and Entrepreneurship, Springer, vol. 8(1), pages 1-19, December.
    7. Munjal, Surender & Varma, Sumati & Bhatnagar, Ankur, 2022. "A comparative analysis of Indian and Chinese FDI into Africa: The role of governance and alliances," Journal of Business Research, Elsevier, vol. 149(C), pages 1018-1033.

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