Can Corrupt Countries Attract Foreign Direct Investment? A Comparison Of FDI Inflows Between Corrupt And Non-Corrupt Countries

Abstract

Globalization and technological innovations create investment opportunities for enterprises worldwide. While firms pursue foreign direct investment opportunities on a global basis, countries compete to attract foreign direct investment (FDI) inflows. Recent studies suggest that corruption negatively impacts FDI inflows and may act as a “tax” on foreign direct investment. Transparency International, a non-profit organization, publishes an annual index measuring the “perceived” level of corruption in countries all over the world. Countries competing for FDI inflows are ranked from least-corrupt to most-corrupt. This paper analyses FDI inflows between the least corrupt and most corrupt countries as determined by Transparency International’s Corruption Perceptions Index. Using UNCTAD’s Inward FDI Potential Index and Inward FDI Performance Index this paper assesses and draws conclusions regarding the absolute amount of FDI inflows, FDI inflows adjusted for country size, and FDI inflow potential.