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

Abstract

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.

Keywords

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