Does Corruption Sand or Grease the Wheels? A Case of BRICS Countries

Abstract

This article examines the effect of corruption on the foreign direct investment (FDI) of BRICS economies, such as Brazil, Russia, India, China and South Africa. An annual data series of BRICS for 1995–2015 is used. The empirical model is estimated by using the system generalized method of moments (SGMM). The estimated outcomes suggest that corruption impacts FDI positively and significantly when these five nations are merged as a single unit. It is because corruption yields a restrictive economic effect. Moreover, the study also revealed that when we study the countries separately, corruption has a negative and significant effect on FDI in Brazil, China and India, whereas, the relationship becomes insignificant for Russia and South Africa. Results suggest that governments should enhance their policies to control corruption. Furthermore, to attract more FDI, the government of each country should look into the motivation behind their FDI inflows and tailor their polices accordingly.

Unemployment – Corruption Relationship in OECD Countries: System GMM Approach

“…In a similar work, Cooray and Schneider (2016) find that higher corruption leads to higher unemployment and emigration. Arif et al (2020) investigate the impact of corruption on Foreign Direct Investment (FDI) in BRICS (Brazil, Russia, India, China, and South Africa) countries. When looking at them in one unit, corruption positively and significantly affect FDI; however, looking at them separately, corruption negatively affects FDI substantially in Brazil, China, and India, whereas the relationship becomes insignificant for Russia and South Africa.…”

“…Therefore, lowering corruption might be substantial, especially in countries where corruption has negative and significant impacts on FDI. Consequently, it can be inferred from Arif et al (2020) that lower corruption is important for lower unemployment.…”

The asymmetric influence of corruption on financial development: fresh evidence from BRICS economies

“…Extensive empirical literature supports both hypotheses of corruption, "grease the wheels" (Leys, 1965;Leff, 1964;Méon and Weill, 2010;Arif et al, 2020) and "sand in the wheels" (Mauro, 1995;Del Monte and Papagni, 2007). Therefore, the impact of the corruption on financial development is still uncertain.…”