The impact of financial development and corruption on foreign direct investment in developing countries

Abstract

Foreign direct investment (FDI) inflows into developing countries play an important role in the dynamics of economic growth. Meanwhile, financial development (FDV) and corruption have been considered a determinant of FDI. Therefore, this study aims to assess the effect of FDV and corruption on FDI in developing countries. In addition, this study explores the combined impact of FDV and corruption on FDI. Furthermore, the data for 108 developing countries were collected from the World Development Indicators (WDI) of the World Bank from 1993 to 2017. The results showed that FDV has a positive and significant effect on FDI, while corruption does not have a statistically significant impact. This demonstrates that FDV has contributed to the growth of foreign investment and the important sources of financing for developing countries. However, the interaction between FDV and corruption has a negative effect on FDI. This implies that FDV followed by an increase in corruption tends to reduce FDI inflows. These results encourage policymakers to address issues regarding the joint impact of FDV and corruption on FDI in developing countries. AcknowledgmentThe authors would like to express their gratitude to three anonymous reviewers and seminar participants at Mulawarman University for their insightful comments.

Structure of local government budgets and local fiscal autonomy: Evidence from Indonesia

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Korupsi Dan Penanaman Modal Asing: Perbaikan Kelembagaan

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“…al (2023) menyatakan bahwa dampak korupsi terhadap FDI berbeda-beda tergantung dari tingkat perkembangan perekonomian negara (Patel et al, 2023). Lestari et. al (2022) dalam penelitiannya menyatakan bahwa korupsi tidak memberikan dampak secara langsung dan signifikan terhadap FDI.…”

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“…A significant number of works deals with negative impact of the shadow economy and the investment attractiveness of the country and the foreign direct investment inflow (Cicea & Marinescu, 2021;Garai-Fodor et al, 2022;Kozmenko & Vasyl'yeva, 2008;Lestari et al, 2022;Millia et al, 2022;Moskalenko et al, 2022aMoskalenko et al, , 2022bPerovic et al, 2021;Selaković, 2022;Vasa & Angeloska, 2020). Abed and Davoodi (2002) conducted an empirical analysis of the shadow economy influence on the volume of foreign direct investment on the example of 24 countries with transitive economies.…”