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Foreign Direct Investment and Corruption in Developing Economies: Evidence form Linear and Non-Linear Panel Causality Tests


  • Craigwell, Roland
  • Wright, Allan S


This paper aims at determining the causal relationship between FDI and corruption in 42 developing countries using linear and non linear panel methods over the period 1998 to 2009. The findings show a causal association as corruption appears to Granger caused FDI and FDI seems to Granger lead corruption using linear methods, while for weaker results are obtain using non linear methods. The general value of these results is that adequate institutional facilities must be in place in developing economies to reduce losses from corruption especially in an attempt to attract foreign direct investment.

Suggested Citation

  • Craigwell, Roland & Wright, Allan S, 2011. "Foreign Direct Investment and Corruption in Developing Economies: Evidence form Linear and Non-Linear Panel Causality Tests," MPRA Paper 40933, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40933

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    References listed on IDEAS

    1. Toke S. Aidt, 2009. "Corruption, institutions, and economic development," Oxford Review of Economic Policy, Oxford University Press, vol. 25(2), pages 271-291, Summer.
    2. Campos, Nauro F & Dimova, Ralitza & Saleh, Ahmad, 2010. "Whither Corruption? A Quantitative Survey of the Literature on Corruption and Growth," CEPR Discussion Papers 8140, C.E.P.R. Discussion Papers.
    3. Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
    4. Nobuo Akai & Yusaku Horiuchi & Masayo Sakata, 2005. "Short-run and Long-run Effects of Corruption on Economic Growth: Evidence from State-Level Cross-Section Data for the United States," International and Development Economics Working Papers idec05-5, International and Development Economics.
    5. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    6. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    7. Ritva Reinikka & Jakob Svensson, 2005. "Fighting Corruption to Improve Schooling: Evidence from a Newspaper Campaign in Uganda," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 259-267, 04/05.
    8. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    9. repec:dau:papers:123456789/4352 is not listed on IDEAS
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    More about this item


    Panel Linear and Non-Linear Causality; Corruption; Foreign Direct Investment;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models


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