EFFECTS OF CORRUPTION AND REGULATORY ENVIRONMENT ON FOREIGN DIRECT INVESTMENT: A CASE STUDY OF AFRICA

Rahim M. Quazi

Global Journal of Business Research, 2014, vol. 8, issue 4, 51-60

Abstract: The impact of corruption on foreign direct investment (FDI) inflows has been analyzed by many recent studies. Corruption can either reduce FDI as a grabbing hand by raising uncertainty and transaction costs or facilitate FDI as a helping hand by "greasing" the wheels of commerce in the presence of a weak regulatory environment. Using the Feasible Generalized Least Squares (FGLS) methodology on 1995- 2011 panel data from 53 African countries, this study finds that corruption facilitates FDI inflows to Africa, which is in line with the helping hand hypothesis. Using the Worldwide Governance Indicators (WGI) data, this study also finds that the overall regulatory environment in Africa is weak, which helps explain the context in which the helping hand hypothesis can be validated in Africa. Finally, it is found that Sub-Saharan Africa suffers from a locational disadvantage in attracting FDI vis-Ã -vis the rest of the continent.

Keywords: Foreign Direct Investment; Corruption; Regulatory Environment; Africa (search for similar items in EconPapers)
JEL-codes: D73 F21 O55 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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