Corruption and Foreign Direct Investment: Empirical investigation of Asian Developing Economies

Abstract

Developing economies have different cultural and economic characteristics, but they often experience similar levels of corruption. At one side developing economies are facing the issue of corruption; on the other hand, they are a potential recipient of FDI. The present study used the data of 31 developing Asian economies from 2000 to 2017 to determine the impact of host country’s level of corruption on inward FDI. System GMM technique is applied for empirical investigation since the problem of endogeneity and heteroscedasticity are found in the models. Results reveal that corruption has a positive and statistically significant impact on inward FDI; corruption also has a positive impact on FDI inflows to GDP ratio for the panel countries. Hence the results of the study endorse the grease the wheel hypothesis of corruption. It is concluded countries should focus their resources to create business friendly environment instead to focus on anti-corruption policies only.