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A generalized empirical model of corruption, foreign direct investment, and growth

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  • Delgado, Michael S.
  • McCloud, Nadine
  • Kumbhakar, Subal C.

Abstract

Who really wins from foreign direct investment (FDI) and by how much? Should winners care about corruption? Building on evidence of heterogeneity in the FDI-growth relationship, we propose a semiparametric model that allows corruption to influence the relationship between the conditioning variables and GDP growth, parameter heterogeneity of unknown form, and the use of instrumental variables. We find evidence that corruption has a sizeable nonlinear role in the FDI-growth relation, weakening the effectiveness of FDI at improving growth rates in many developing countries. Developing countries with insignificant or low returns to FDI may benefit substantially from reducing corruption.

Suggested Citation

  • Delgado, Michael S. & McCloud, Nadine & Kumbhakar, Subal C., 2014. "A generalized empirical model of corruption, foreign direct investment, and growth," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 298-316.
    • Handle: RePEc:eee:jmacro:v:42:y:2014:i:c:p:298-316
    DOI: 10.1016/j.jmacro.2014.09.007
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    More about this item

    Keywords

    Foreign direct investment; Corruption; Parameter heterogeneity; Economic growth; Nonparametric method of moments; Instrumental variables;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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