IDEAS home Printed from https://ideas.repec.org/a/tuz/journl/v10y2012i2p13-28.html
   My bibliography  Save this article

Corruption'S Effect On Foreign Direct Investment - The Case Of Montenegro

Author

Listed:
  • Elvira Pupovic

    (Doctoral Student of University of Montenegro, Faculty of Economics)

Abstract

All investments and asset classes have different levels of risks and expected returns. For example, low risk investments such as cash generally provide a lower return than high risk investments over the long term, but are unlikely to lead to a capital loss. High risk investments generally offer the potential of a higher return over the long term, but there is a higher probability that high risk investments will be more volatile in the short term (leading to capital loss if funds are withdrawn in the short term). This study introduces a new perspective on the role of corruption in investment growth and provides quantitative estimates of the impact of corruption on the investment inflows. Motivated by these issues, the main objective of this article is to empirically reexamine the effects of corruption on foreign direct investment (FDI) inflows by incorporating a further link between corruption and investment inflows as new understanding investment concepts. Using data from Transparency International report, World Bank and National Banking Statistical data, it is manifested in a cross sectional setting that corruption has a negative and significant impact on the foreign direct investment inflows. There are a number of risks to be considered such as investment market risk, credit risk or interest rate risk, but the new model of eliminated unexpected risk involved managing corruption's effect on investments. Because of the need that assessing risk and potential investment returns should be in the context of goals and the time that we have to achieve our objectives, we have to immediately consider the linkage between corruption and investment inflows and to teach how to manage this phenomenon like an old risk of a new model.

Suggested Citation

  • Elvira Pupovic, 2012. "Corruption'S Effect On Foreign Direct Investment - The Case Of Montenegro," Economic Review: Journal of Economics and Business, University of Tuzla, Faculty of Economics, vol. 10(2), pages 13-28.
    • Handle: RePEc:tuz:journl:v:10:y:2012:i:2:p:13-28
    as

    Download full text from publisher

    File URL: http://www.ef.untz.ba/images/Casopis/Novembar2012/Paper2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Egger, Peter & Winner, Hannes, 2005. "Evidence on corruption as an incentive for foreign direct investment," European Journal of Political Economy, Elsevier, vol. 21(4), pages 932-952, December.
    2. Manuel Agosin & Roberto Machado, 2005. "Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 149-162.
    3. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April.
    4. Arvind K. Jain, 2011. "Corruption: Theory, Evidence and Policy," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(02), pages 3-9, July.
    5. Katariina Nilsson Hakkala & Pehr-Johan Norbäck & Helena Svaleryd, 2008. "Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 627-642, November.
    6. repec:bla:kyklos:v:54:y:2001:i:1:p:89-113 is not listed on IDEAS
    7. Sugata Ghosh & Andros Gregoriou, 2008. "The composition of government spending and growth: is current or capital spending better?," Oxford Economic Papers, Oxford University Press, vol. 60(3), pages 484-516, July.
    8. repec:ces:ifodic:v:9:y:2011:i:2:p:16132588 is not listed on IDEAS
    9. Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, vol. 113(491), pages 632-652, November.
    10. Mr. Vito Tanzi & Mr. Hamid R Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 1997/139, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tran, My Thi Ha, 2021. "Public Sector Management And Corruption In Asean Plus Six," OSF Preprints stxw4, Center for Open Science.
    2. Mosikari, Teboho Jeremiah & Nthebe, Tselane Confidence & Eita, Joel Hinaunye, 2018. "Does corruption hampers inward FDI in South Africa from other African countries? a gravity model analysis," MPRA Paper 88735, University Library of Munich, Germany, revised 10 Jul 2018.
    3. Omodero Cordelia Onyinyechi, 2019. "Effect of Corruption on Foreign Direct Investment Inflows in Nigeria," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 29(2), pages 54-66, June.
    4. Yilmaz BAYAR, & Naib ALAKBAROV, 2016. "CORRUPTION AND FOREIGN DIRECT INVESTMENT INFLOWS IN EMERGING MARKET ECONOMIES Usak University, Department of Economics, Usak, Turkey," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 5(2), pages 1-47, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hamdi, Helmi & Hakimi, Abdelaziz, 2015. "Corruption, FDI and Growth: All the truths of a corrupted regime before and after the social upsurge in Tunisia," MPRA Paper 63748, University Library of Munich, Germany.
    2. Di Guardo, Maria Chiara & Marrocu, Emanuela & Paci, Raffaele, 2016. "The effect of local corruption on ownership strategy in cross-border mergers and acquisitions," Journal of Business Research, Elsevier, vol. 69(10), pages 4225-4241.
    3. Eugen Dimant & Guglielmo Tosato, 2018. "Causes And Effects Of Corruption: What Has Past Decade'S Empirical Research Taught Us? A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 335-356, April.
    4. Bertrand Venard, 2013. "Institutions, Corruption and Sustainable Development," Post-Print hal-00874275, HAL.
    5. Barassi, Marco R. & Zhou, Ying, 2012. "The effect of corruption on FDI: A parametric and non-parametric analysis," European Journal of Political Economy, Elsevier, vol. 28(3), pages 302-312.
    6. Cristina Mihaela Amarandei, 2013. "Corruption And Foreign Direct Investment. Evidence From Central And Eastern European States," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 5(3), pages 311-322, September.
    7. Bertrand Venard, 2013. "Institutions, Corruption and Sustainable Development," Economics Bulletin, AccessEcon, vol. 33(4), pages 2545-2562.
    8. Ledyaeva, Svetlana & Karhunen, Päivi & Kosonen, Riitta, 2013. "Birds of a feather: Evidence on commonality of corruption and democracy in the origin and location of foreign investment in Russian regions," European Journal of Political Economy, Elsevier, vol. 32(C), pages 1-25.
    9. Ratbek Dzhumashev, 2014. "The Two-Way Relationship Between Government Spending And Corruption And Its Effects On Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 403-419, April.
    10. Jingtao Yi & Shuang Meng & Craig D. Macaulay & Mike W. Peng, 2019. "Corruption and foreign direct investment phases: The moderating role of institutions," Journal of International Business Policy, Palgrave Macmillan, vol. 2(2), pages 167-181, June.
    11. Morozumi, Atsuyoshi & Veiga, Francisco José, 2016. "Public spending and growth: The role of government accountability," European Economic Review, Elsevier, vol. 89(C), pages 148-171.
    12. Atsuyoshi Morozumi & Francisco José Veiga, 2014. "Public spending and growth: the role of institutions," NIPE Working Papers 11/2014, NIPE - Universidade do Minho.
    13. Tuan T. Chu & Jens Hölscher & Dermot McCarthy, 2020. "The impact of productive and non-productive government expenditure on economic growth: an empirical analysis in high-income versus low- to middle-income economies," Empirical Economics, Springer, vol. 58(5), pages 2403-2430, May.
    14. Tran, My Thi Ha, 2021. "Public Sector Management And Corruption In Asean Plus Six," OSF Preprints stxw4, Center for Open Science.
    15. Chih, Yao-Yu & Demir, Firat & Hu, Chenghao & Liu, Junyi & Shen, Hewei, 2023. "A spatial analysis of local corruption on foreign direct investment: Evidence from Chinese cities," European Journal of Political Economy, Elsevier, vol. 79(C).
    16. repec:jes:wpaper:y:2013:v:5:p:311-322 is not listed on IDEAS
    17. M. Emranul Haque & Richard Kneller, 2012. "Why Public Investment fails to raise economic growth in some countries?: The role of corruption," Centre for Growth and Business Cycle Research Discussion Paper Series 162, Economics, The University of Manchester.
    18. Shrabani Saha & Kunal Sen, 2019. "The corruption-growth relationship: Do political institutions matter?," WIDER Working Paper Series wp-2019-65, World Institute for Development Economic Research (UNU-WIDER).
    19. Couttenier, Mathieu & Toubal, Farid, 2017. "Corruption for sales," Journal of Comparative Economics, Elsevier, vol. 45(1), pages 56-66.
    20. Qu, Guangjun & Sylwester, Kevin & Wang, Feng, 2016. "Anticorruption and Growth: Evidence from China," MPRA Paper 72190, University Library of Munich, Germany.
    21. Paulus, Michal & Kristoufek, Ladislav, 2015. "Worldwide clustering of the corruption perception," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 428(C), pages 351-358.

    More about this item

    Keywords

    corruption; risk; investment;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tuz:journl:v:10:y:2012:i:2:p:13-28. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Senad Celikovic (email available below). General contact details of provider: https://edirc.repec.org/data/efutzba.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.