Corruption: A Grabbing-Hand or a Helping-Hand for Foreign Direct Investment: Evidence From East African Countries

Abstract

FDI is an integral part of globalization and global economy that generates employment, enhance technological and product development, and ultimately economic development and growth. Given its importance FDI is affected by various socio-economic and political factors such as corruption. But there is no conscience whether corruption plays a grabbing-hand role or a helping hand role for FDI inflow. The aim of the study is to examine the Corruption-FDI nexus in selected East African countries for the time span 1990 to 2019. The panel ARDL model was applied using the PMG estimation technique. Based on the PMG estimation results the short run and long run relationships between FDI inflow and its determinants was analysed. The main findings showed that in long run COC positively and significantly (1%) influence FDI inflow in East African countries during the period 1990-2019. The other control variables that affect FDI inflow are INFR and TO. In the long run, INFR and TO positively and statistically significantly (1% and 5%, respectively) influence FDI inflow. Other variables such as MS and INFL have no significant impact on FDI inflow in long run. In the short run, COC, MS, INFR, INFL and TO are irrelevant to FDI inflow. Policy makers, investment bureaus, and other stake holders should work more on control of corruption (COC) to enhance the flow of FDI. Potential research can be conducted by considering other policy and investment variables using most recent data for more African countries.