Prague Economic Papers 2014, 23(4):474-492 | DOI: 10.18267/j.pep.494

The Weak Relation between Foreign Direct Investment and Corruption: A Theoretical and Econometric Study

Tomáš Evan1, Ilya Bolotov2
1 CIEE Prague and University of New York in Prague, Czech Republic (tomas_evan@hotmail.com).
2 University of Economics, Prague, Czech Republic (ilya.bolotov@vse.cz).

Foreign direct investment has become an important factor of development of economies in the last decades. However, its economic nature as well as its relationship with corruption has not yet been clarified in economic literature. Following previous theoretical research, mainly Dunning's eclectic model, this paper evaluates the econometric relationship between corruption and foreign direct investment by testing three theoretically-based hypotheses: that corruption perception indicator is a stationary variable, that the relationship between corruption and foreign direct investment stock is statistically weak and that changes in foreign direct investment stock do not Granger cause changes in corruption. The verification is based on unit root tests, panel co-integration and Granger causality models performed on data from the Transparency International, the World Bank and the Heritage Foundation and the UN Conference on Trade and Development (UNCTAD) for 94 countries for the years 1998-2007. The results show that there is no significant relationship between the two variables.

Keywords: foreign direct investment, corruption, Dunning eclectic model, unit root tests, panel Granger causality test, Choi meta-tests, panel co-integration
JEL classification: C12, C23, F21, F23

Published: January 1, 2014  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Evan, T., & Bolotov, I. (2014). The Weak Relation between Foreign Direct Investment and Corruption: A Theoretical and Econometric Study. Prague Economic Papers, 23(4), 474-492. doi: 10.18267/j.pep.494
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Al-Sadig, A. (2009), "The Effects of Corruption on FDI Inflows." Cato Journal, Vol. 29, No. 2, pp. 267-294.
    2. Arlt, J. (1997), "Regresní analýza nestacionárních ekonomických časových řád." Politická ekonomie, Vol. 45, No. 2, pp. 281-289. Go to original source...
    3. Arlt, J. (1999), Moderní metody modelování ekonomických časových řad. Praha: Grada Publishing.
    4. Benáček, V. (2010), Is the Czech Economy a Success Story? The Case of CzechInvest: The Strategic Promotion Agency in Czech Industrial Restructuring. Santiago: ECLAC.
    5. Breusch, T. S., Pagan, A. R. (1979), "Simple Test for Heteroscedasticity and Random Coefficient Variation". Econometrica, Vol. 47, No. 5, pp. 1287-1294. Go to original source...
    6. Caetano, J., Caleiro, A. (2005), "Corruption and Foreign Direct Investment: What Kind of Relationship Is There?" Portugal: University of Évora, Department of Economics, Economics Working Papers No. 18.
    7. Caves, R. E. (1982), Multinational Enterprise and Economic Analysis. Cambridge: Cambridge University Press.
    8. Choi, I. (2001), "Unit Root Tests for Panel Data." Journal of International Money and Finance, Vol. 20, No. 2, pp. 249-272. Go to original source...
    9. Dickey, D. A., Fuller, W. A. (1979), "Distribution of the Estimators for Autoregressive Time Series with a Unit Root." Journal of the American Statistical Association, Vol. 74, No. 366, pp. 427-431. Go to original source...
    10. Dunning, J. H. (1998), "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions." Journal of International Business Studies, Vol. 19, No. 1, pp. 1-31. Go to original source...
    11. Dupal, J. (2009), "Účinky přímých zahraničních investic podpořených investičními pobídkami v kontextu svých pozitiv a negativ." University of Economics, Prague. PhD thesis.
    12. Engle, R., Granger, C. W. J. (1987), "Co-Integration and Error Correction: Representation, Estimation, and Testing." Econometrica, Vol. 55, No. 2, pp. 251-276. Go to original source...
    13. Evan, T. (2006), "K některým otázkám politické ekonomie přímých zahraničních investic." Prague: University of Economics, Ph.D. thesis.
    14. Evan, T. (2010), "Some Issues of Political Economics of Multinational Corporations." Acta Oeconomica Pragensis, Vol. 18, No. 4, pp. 32-43. Go to original source...
    15. Granger, C. W. J. (1969), "Investigating Causal Relations by Econometric Models and Cross-spectral Methods." Econometrica, Vol. 37, No. 3, pp. 424-438. Go to original source...
    16. Harrison, M. J. (2003), "Can Corrupt Countries Attract Foreign Direct Investment? A Comparison of FDI Inflows Between Corrupt and Non-Corrupt Countries." International Business and Economic Research Journal, Vol. 2, No. 9, pp. 93-100. Go to original source...
    17. Hood, M. V., Kidd, Q., Morris, I. L. (2006), "Two Sides of the Same Coin? Employing Granger Causality Tests in a Panel Framework." Mimeo, University of Maryland.
    18. Hurlin C. (2004a), "A Note on Causality Tests in Panel Data Models With Random Coefficients." Mimeo, University of Orleans.
    19. Hurlin C. (2004b), "Testing Granger Causality in Heterogenous Panel Data Models with Fixed Coefficients." University of Orleans Working Paper.
    20. Hurlin C., Venet, B. (2001), "Granger Causality Tests in Panel Data Models with Fixed Coefficients." Université Paris IX Dauphine, Working Paper No. Eurisco 2001-09.
    21. Hurlin, C., Dumitrescu, E. (2012), "Testing for Granger Non-causality in Heterogeneous Panels." Economic Modelling, Vol. 29, No. 4, pp. 1450-1460. Go to original source...
    22. Hymer, S. H. (1960), The International Operations Of National Firms: A Study of Direct Foreign Investment. Cambridge, Massachusetts (USA): MIT Press.
    23. Hymer, S. H. (1976), The International Operations of National Firms: A Study of Direct Investment. Cambridge: Cambridge University Press.
    24. Kao, C. (1999), "Spurious Regression and Residual-based Tests for Cointegration in Panel Data." Journal of Econometrics, Vol. 90, No. 1, pp.1-44. Go to original source...
    25. Kelley, K., Maxwell, S. E. (2003), "Sample Size for Multiple Regression: Obtaining Regression Coefficients That Are Accurate, not Simply Significant." Psychological Methods, Vol. 8, No. 3, pp. 305-321. Go to original source...
    26. Kindleberger, C. P. (1969), American Business Abroad: Six Lectures on Direct Investment. New Haven and London: Yale University Press. Go to original source...
    27. Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., Shin, Y. (1992), "Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root." Journal of Econometrics, Vol. 54, No. 1-3, pp. 159-178. Go to original source...
    28. Lee, J. Y., Mansfield, E. (1996), "Intellectual Property Protection and U.S. Foreign Direct Investment." Review of Economics and Statistics, Vol. 78, No. 2, pp. 181-186. Go to original source...
    29. Newey, W. K., West, K. D. (1987), "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix." Econometrica, Vol. 55, No. 3, pp. 703-708. Go to original source...
    30. Petříček, V. (2003), Vývoj investičního prostředí v České republice. Praha: Corona.
    31. Schwert, G. W. (1988), "Tests for Unit Roots: A Monte Carlo Investigation." National Bureau of Economic Research, NBER Technical Working Papers No. 0073. Go to original source...
    32. Vernon, R., Wells, L. T. (1972), The Economic Environment in International Business. Boston: Prentice-Hall.
    33. Vijayakumar, N., Sridharan, P., Rao, K. C. S. (2010), "Determinants of FDI in BRICS Countries: A Panel Analysis." International Journal of Business Science and Applied Management, Vol. 5, No. 3, pp. 1-13.
    34. Wald, A. (1943), "Tests of Statistical Hypotheses Concerning Several Parameters when the Number of Observations Is Large." Transactions of the American Mathematical Society, Vol. 54, No. 3, pp. 426-482. Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content