ASSESSMENT OF CORRUPTION EFFECT ON FOREIGN INVESTMENT FLOWS

Abstract

The purpose of the present paper is to investigate the impact of corruption on foreign direct investment (FDI) flows. Using data from the International Monetary Fund, Transparency International and United Nations conference about commerce and development data bases a cross-section econometric model was estimated to evaluate in which way and how strong corruption influence FDI inflows. Econometric modelling covers the period from year 2000 to 2007 and the data about 82 world countries that constitute more than 500 records. The main conclusion of the paper is that corruption has a negative and significant impact on the foreign direct investment inflows. Thus, changes in the level of corruption in the country, which is reflected as a decrease (increase) of the corruption index by one solitary, on average, cause an increase (decrease) in FDI inflow by 96,064 dollars per capita. Moreover, every single point of the corruption index in the previous assessment period, on the average ensures 123,077 dollars inflow of FDI per capita.