Domestic interest rate, foreign direct investment, and corruption

Nadine McCloud and Michael S. Delgado ()
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Michael S. Delgado: Purdue University

Review of World Economics (Weltwirtschaftliches Archiv), 2022, vol. 158, issue 2, No 3, 467-491

Abstract: Abstract It has been argued that foreign direct investment can exert upward or downward pressure on the domestic interest rate depending on foreign investors’ relative weights on internal and external finance with respect to the domestic economy. Additionally, a country’s level of corruption can influence firms’ ability to obtain external finance. We find that across countries a 1 percent increase in FDI inflows (outflows) is more likely to reduce the domestic interest rate by as much as 0.7 (1) percent. This empirical association between domestic interest rates and FDI flows is non-monotonically contingent on a country’s level of corruption.

Keywords: Interest rate; Foreign direct investment; Corruption; Instrumental variables; Generalized method of moments; Semiparametric estimation (search for similar items in EconPapers)
JEL-codes: C14 C26 E02 E43 E44 F21 F34 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10290-021-00435-0

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