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

• Published in: Journal of African business Vol. 16; no. 1-2; pp. 159 - 179
• Main Authors: Teixeira, Aurora A. C., Guimarães, Luís
• Format: Journal Article
• Language: English
• Published: Binghamton Routledge 01-01-2015; Taylor & Francis Ltd
• Subjects: Corruption; Econometrics; Economic analysis; Economic development; Foreign direct investment; Foreign direct investment (FDI); Foreign investment; Host country; institutional quality; International investment; Manycountries; Multivariate analysis; proxies; Studies
• ISSN: 1522-8916; 1522-9076
• DOI: 10.1080/15228916.2015.1027881

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).