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The effect of corruption on FDI and its modes of entry

Author

Listed:
  • Hiep Ngoc Luu
  • Ngoc Minh Nguyen
  • Hai Hong Ho
  • Vu Hoang Nam

Abstract

Purpose - The purpose of this paper is to empirically investigate the impact of corruption on foreign direct investment (FDI) and its two major modes of entry: greenfield investment (greenfield) and cross-border mergers and acquisitions (M&As). Design/methodology/approach - Data are collected from 131 countries. Modern econometric techniques, including the generalized method of moments (GMM) estimator, two-stage least square estimator and two-step system GMM estimator, are used to evaluate the impact of corruption on FDI activities. Findings - The empirical results illustrate that corruption is a deterioration factor that significantly hinders FDI inflows. However, this finding turns out to be contradictory when the two major components of FDI – greenfield investment and cross-border M&As – are separately examined. Specifically, while corruption consistently discourages cross-border M&As over time, it appears to exert positive effect on greenfield investments. Originality/value - This is among the first to empirically examine the impact of corruption on FDI and its modes of entry in a number of countries spanning different time windows. In this sense, this paper also captures the changing nature of societies and economic conditions overtime and, therefore, enable academic researchers, policy-makers and business practitioners to draw broad inferences from the empirical results.

Suggested Citation

  • Hiep Ngoc Luu & Ngoc Minh Nguyen & Hai Hong Ho & Vu Hoang Nam, 2018. "The effect of corruption on FDI and its modes of entry," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 11(2), pages 232-250, October.
    • Handle: RePEc:eme:jfeppp:jfep-05-2018-0075
    DOI: 10.1108/JFEP-05-2018-0075
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    Citations

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    Cited by:

    1. William Bekoe & Talatu Jalloh & Wassiuw Abdul Rahaman, 2021. "Corruption and Foreign Direct Investment Inflows: Evidence from West Africa," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 14(3), pages 7-25, December.
    2. Devine, Avis & McCollum, Meagan & Orlova, Svetlana, 2022. "Cleaning up corruption and the climate: The role of green building certifications," Finance Research Letters, Elsevier, vol. 47(PA).
    3. Vissa, Siva Kameswari & Thenmozhi, M., 2022. "Do home country stability factors matter for domestic and cross border mergers and acquisitions? A case of G19 countries," Finance Research Letters, Elsevier, vol. 47(PA).

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