The effect of corruption on foreign direct investment in natural resources: A Latin American case study

Manuel David Cruz and Ashish Kumar Sedai

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This study looks at the relationship between corruption and foreign direct investment (FDI) in natural resources using a panel of 20 Latin American countries from 1995-2019. We find that lower levels of corruption have a positive and significant impact on resource FDI supporting the grabbing hand hypothesis. A one-point increase in the Corruption Perception Index (CPI) is associated with an increase between 52-57 million dollars across models with varying controls. Results also show a nonlinear relationship between CPI and resource FDI, suggesting that when a country becomes less corrupt and improves its economic, social and political performance, it usually attracts more resource FDI. The analysis is robust to alternate measures of corruption (CPI, ICRG, and WGI) and different specifications of the dynamic panel model. Finally, the study highlights significant precautions and pre-conditions required to increase economic development when attracting natural resource-based FDI.

Keywords: Foreign direct investment; corruption; natural resources; grabbing hand; Latin America (search for similar items in EconPapers)
JEL-codes: E02 F21 F23 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2021-12
New Economics Papers: this item is included in nep-fdg, nep-int and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2021-98

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