Corruption as an Entry Incentive and Exit Barrier for Foreign Direct Investment (FDI)

Héctor Flores Márquez, Omar Neme Castillo


The paper estimates the effect of corruption in the host country on flows of direct foreign investment (FDI), input and output. The objective is to demonstrate if corruption is a vehicle that attracts FDI or, on the contrary, it is a mechanism that inhibits these capitals. A panel methodology System of Generalized Methods of Moments (Sys-GMM) is used for 126 countries classified by the income level for the 1996-2016 period. It is shown that corruption has the effect of attracting inward-FDI and preventing outward-FDI, having a positive effect on net FDI. There is also a significant difference in the sensitivity of FDI to corruption among groups of countries.

Palabras clave

Corruption; Outward Foreign Direct Investment; Inward Foreign Direct Investment; Corruption Distance; Income Levels.


Acemoglu, D., Johnson, S. & Robinson, J. (2005). “Institutions as the fundamental cause of long-run growth”. In Aghion, P. & Durlauf, S. (Eds.), Handbook of Economic Growth. Elsevier: North Holland.

Akçay, S. (2001). “Is corruption an obstacle for foreign investors in developing countries? A cross-country evidence”. Yapi Kredi Economic Review, 12(2):27-34.

Alemu, A. (2012). “Effects of corruption on FDI inflow in Asian economies”. Seoul Journal of Economics, 25(4):378-412.

Alm, J., Martínez, J. & McClellan, C. (2016). “Corruption and firm tax evasion”. Journal of Economic Behavior & Organization, 124:146-163.

Amal, M. (2016). Foreign Direct Investment in Brazil. Columbia University: New York.

Angeles, G. & Camarillo, D. (2014). “Determinants of tax revenue in OECD countries”. Contaduría y Administración, 59(3):35-59.

Aparna, A. & Kartikeya, S. (2011). “FDI, corruption and democracy”. Applied Economics, 45(8):991-1002.

Arellano, M. & Bond, S. (1991). “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations”. The Review of Economic Studies, 58 (2):277-97.

Arellano, M. & Bover, O. (1995). “Another look at the instrumental variable estimation of error-component models”. Journal of Econometrics, 68:29-51.

Artige, L. & Nicolini, R. (2006). “Evidence on the determinants of FDI. The case of three European regions”. CREPP Working Papers 0607.

Bahmani, M. & Nasir, A. (2002). “Corruption, law and order, bureaucracy, and real exchange rate”. Economic Development and Cultural Change, 50:397-404.

Baltagi, B. & Wu, P. (1999). “Unequally spaced panel data regressions with AR(1) disturbances”. Econometric Theory, 15:814-823.

Barassi, M. & Zhou, Y. (2012). “The effect of corruption on FDI: A parametric and non-parametric analysis”. European Journal of Political Economy, 28(3):302-312.

Bhargava, A., Franzini, L. & Narendranathan, W. (1982) “Serial correlation and the fixed effects model” The Review of Economic Studies. 49(4):533-549.

Bellos, S. & Subasat, T. (2012). “Corruption and FDI investment: A panel gravity model approach”. Bulletin of Economic Research, 64(4):565-574.

Blackburn, K. & Powell, J. (2011). “Corruption, inflation and growth”. Economic Letters, 13(3):225-227.

Blundell, A. & Roulet, C. (2017). “Foreign direct investment, corruption and the OECD Anti-Bribery Convention”. OECD Working Papers on International Investment, 2017/01.

Blundell, R. & Bond, S. (1998). “Initial conditions and moment restrictions in dynamic panel data models”. Journal of Econometrics, 87:115-43.

Bray, J. (2005). “The use of intermediaries and other ‘alternatives’ to bribery”. In Graf, J., Schramm, M. & Taube, M. (Eds.), The new institutional economics of corruption. Norms, trust, and reciprocity. Routledge: London.

Brunetti, A. & Weder, B., (1998). “Explaining corruption”, Versión preliminar, Universidad de Saarland y Universidad de Basel.

Canare, T. (2017). “The effect of corruption on FDI inflows: Evidence from a panel of Asia-Pacific countries”. In dela Rama, M. & Rowley, C. (Eds.), The changing face of corruption in the Asia Pacific. Current perspectives and future challenges. Elsevier Series.

Charkrabarti, A. (2001). “The determinants of FDI: Sensitivity analyses of cross-country regressions”. Kyklos, 54(1):89-114.

Cieslik, A. & Goczek, L. (2018). “Control of corruption, international investment, and economic growth. Evidence from panel data”. World Development, 103:323-335.

Cooray, A., Dzhumashey, R. & Schneider, F. (2017). “How does corruption affect public debt? An empirical analysis”. World Development, 90:115-127.

Cuervo, A. (2006). “Who cares about corruption”. Journal of International Business Studies, 37(6):807-822.

Cuervo, A. (2008). “The effectiveness of laws against bribery abroad”. Journal of International Business Studies, 39:634-651.

Cuervo, A. (2016). “Corruption in international business”. Journal of World Business, 51:35-49.

Cushman, D. & De Vita, G. (2017). "Exchange rate regimes and FDI in developing countries: A propensity score matching approach". Journal of International Money and Finance, 77:143-163.

Delgado, M., McCloud, N. & Kumbhakar, S. (2014). “A generalized empirical model of corruption, FDI and growth”, Journal of Macroeconomics, 42:298-316.

Deysine, A., (1980). “Political Corruption: A review of the literature”, European Journal of Political Research, 7:447-462.

Dzhumashev, R. (2014). “Corruption and growth: The role of governance, public spending, and economic development”. Economic Modelling, 37:202-215.

Doornik, J. A., Arellano, M. & Bond, S. (2002) Panel data estimation using DPD for OX, Centro de Estudios Monetarios y Financieros: Madrid.

Dreher, A. & Gassebner, M. (2013). Greasing the wheels? The impact of regulations and corruption on firm entry. Public Choice, 155(3):413-432.

Dunning, J. (1993). Multinational enterprises and the global economy. Addison Wesley: Essex.

Egger, P. & Winner, H. (2005). “Evidence on corruption as an incentive for foreign direct investment”. European Journal of Political Economy, 21:932-952.

Egger, P. & Winner, H. (2006). “How corruption influences foreign direct investment: A panel data study”. Economic Development and Cultural Change, 54:459-486.

Epaphra, M. & Massawe, J. (2017). “The effect of corruption on FDI: A panel data study”. Turkish Economic Review, 4(1):19-54.

Espinoza, R. & Torres, A. (2004). “Corrupción, inversión extranjera directa y reformas institucionales”. EconoQuantum, 1(1):17-39.

Ganiou, A. (2015). “What drives FDI in Africa? An empirical investigation with panel data”. African Development Review, 27(4):392-402.

Glass, A. & Wu, X. (2002). “Does corruption discourage FDI and innovation?”. Working Paper. Texas A&M University.

Godinez, J. & Liu, L. (2015). “Corruption distance and FDI flows into Latin America”, International Business Review, 24(1):33-42.

Graf, J. (1998). “Corruption in comparative perception”. In Jain, A. (ed.), Economics of Corruption. Springer: New York.

Habib, M. & Zurawicki, L. (2002). “Corruption and foreign direct investment”. Journal of International Business Studies, 33(2):291-307.

Hakkala, K., Norback, P. & Svaleryd, H. (2005). “Asymmetric effects of corruption on FDI: Evidence from Swedish multinational firms”. The Research Institute of Industrial Economics Working paper 641.

Henisz, W. (2000). “The institutional environment for multinational investment”. Journal of Law, Economics and Organization, 16(2):334-364.

Hongxin, J., Seung, K. & Du, J. (2003). “The impact of corruption and transparency on FDI: An empirical analysis". Management International Review, 43(1):41-62.

Huang, C. (2016). “Is corruption bad for economic growth? Evidence from Asia-Pacific countries". The North American Journal of Economics and Finance, 35:247-256.

Jain, P., Kuvvet, E. & Pagano, M. (2017). “Corruption´s impact on foreign portfolio investment”. International Business Review, 26(1):23-35.

Jiang, T. & Nie, H. (2014). “The stained China miracle: Corruption, regulation, and firm performance”. Economic Letters, 123(3):366-369.

Joss. S. (2018). “FDI, democracy and corruption in Sub-Saharan Africa”. Journal of Policy Modeling, 40(4):647-662.

Kolnes, V. (2016). FDI and corruption. An econometric analysis of the multidimensional effects of corruption upon FDI inflow. Master Thesis. The University of Bergen.

Lambsdorff, J. (2003). “How corruption affects persistent capital flows”. Economics of Governance, 4:229-243.

La Porta, R. López-De-Silanes, F., Shleifer, A. & Vishny, R., (1999). “The quality of government”. The Journal of Law, Economics and Organization, 15:222-79.

Lederman, D., Loayza, N. & Soares, R. (2001). “Accountability and corruption: political institutions matter”. Policy Research Working Paper, 2708.

Nielsen, B., Geisler, C. & Dohlman, C. (2017). “The location choice of FDI: Empirical evidence and methodological challenges”. Journal of World Business, 52(1):62-82.

Ohlsson, M. (2007). Impact of corruption on FDI. A cross-country analysis. Tesis de Maestría. Universidad Jönköping.

Okada, K. & Samreth, S. (2010). “How does corruption influence the effect of foreign direct investment on economic growth?”. MPRA Paper No. 27572.

Okafor, G., Piesse, J. & Webster, A. (2015). “The motives for inward FDI into Sub-Saharan African countries”. Journal of Policy Modeling, 37(5):875-890.

Petrou, A. & Thanos, I. (2014). “The grabbing hand or the helping hand view of corruption: Evidence from bank foreign market entries”. Journal of World Business, 49:444-454.

Quazi, R., Vemuri, V. & Soliman, M. (2014). “Impact of corruption on foreign direct investment in Africa”. International Business Research, 7(4):1-10.

Saha, S. & Gounder, R. (2013). “Corruption and economic development Nexus: Variations across income level in a non-linear framework”. Economic Modelling, 31:70-79.

Sanyal, R. & Samanta, S. (2008). “Effect of perception of corruption on outward US foreign direct investment”. Global Business and Economics Review, 10(1):123-140.

Sarkar, H. & Hasan, M. (2001). “Impact of corruption on the efficiency of investment: Evidence from a cross-country analysis”. Asia Pacific Development Journal, 8(2):111-116.

Singh, H. & Jun, K. (1996). “The determinants of FDI in developing countries”. Transnational Corporations, 5(2):67-105.

Tanzi, V. (1998). Corruption around the world. Causes, consequences, scope, and cures, IMF Staff Papers, 45:559-594.

TI. (2006). Enforcement of OECD anti-bribery convention still deficient despite progress: New report. International Transparency: Berlin.

Tian, Y. (2018). “Optimal policy for attracting FDI: Investment cost subsidy versus tax rate reduction”. International Review of Economics & Finance, 53:151-159.

Wei, S. (2000a). “How taxing is corruption on international investors?”. Review of Economic and Statistics, 82:1-11.

Wei, S. (2000b). “Local corruption and global capital flows”. Brookings Papers on Economic Activity, 2:303-354.

Weitzel, U. & Berns, S. (2006). “Cross-border takeovers, corruption and related aspects of governance”. Journal of International Business Studies, 37(6):786-806.

Wu, S., Li, B., Nie, Q. & Chen, C. (2017). “Government expenditure, corruption and total factor productivity”. Journal of Cleaner Production, 168(1):279-289.


Enlaces refback

  • No hay ningún enlace refback.

Copyright (c) 2021 Creative Commons (CC-BY)

e-ISSN:2340-4264   -   ISSN: 1576-0162

Entidad editoraUniversidad de Huelva. Servicio de Publicaciones.

Licencia de usoCreative Commons 4.0