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Effects Of Corruption And Regulatory Environment On Foreign Direct Investment: A Case Study Of Africa

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  • Rahim M. Quazi

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.

Suggested Citation

  • Rahim M. Quazi, 2014. "Effects Of Corruption And Regulatory Environment On Foreign Direct Investment: A Case Study Of Africa," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 8(4), pages 51-60.
    • Handle: RePEc:ibf:gjbres:v:8:y:2014:i:4:p:51-60
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    References listed on IDEAS

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    Cited by:

    1. Nedra Baklouti & Younes Boujelbene, 2018. "Moderation of the Relationship Between Size of Government and Corruption by Democracy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 9(4), pages 1210-1223, December.
    2. Jain, Pankaj K. & Kuvvet, Emre & Pagano, Michael S., 2017. "Corruption’s impact on foreign portfolio investment," International Business Review, Elsevier, vol. 26(1), pages 23-35.

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    More about this item

    Keywords

    Foreign Direct Investment; Corruption; Regulatory Environment; Africa;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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