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Foreign Direct Investment (FDI) is seen as a significant driver of economic growth and a potential ally in the struggle against poverty and inequality, making emerging countries focus on attracting this type of investment. Thus, understanding factors that impact the concentration of regional FDI is essential to verifying which characteristics encou...
Contexts in source publication
Context 1
... behavior occurs due to the large volume of regions without the presence of FDI in several sectors. In Figure 3, we can see the sectoral distribution of FDI by region, where a high concentration of foreign investment can be seen in specific economic activities, such as transformation industries (Sector C), agriculture, livestock, forest production, fisheries and aquaculture (Sector A) and trade, repair of motor vehicles and motorcycles (Sector G). Robust standard error in parentheses. ...
Citations
... The study improvises the previous empirical model from the study by Onody et al. (2022), which studies the impacts of corruption on FDI. The basic panel regression is shown as follows: ...
... Given the alarming ascent of corruption in emerging economies in Latin America and the dependence of these countries on foreign investment for growth (Onody et al., 2022), this research contributes to the debate on whether corruption 'sands' or 'greases' growth in developing countries. The traditional viewpoint is that countries known for corruption will suffer from attrition by investors due to the volatility of bribes and lack of transparency associated with 'under the table' expenses. ...
This paper explores the nature of causality between corruption and FDI inflows in five Latin American countries. Unlike prior empirical studies that use correlation-based standard regressions, we employ dynamic cointegrated error-correction models to uncover the directions of Granger-causality between corruption and FDI inflows. The evidence is overwhelmingly supportive of causality that is either unidirectional running from corruption to FDI inflows or bidirectional between them. In addition, the results imply some challenges for policy-makers particularly in Brazil and Costa Rica in their attempts to control corruption as causality patterns between corruption and FDI inflows prove dynamic, i.e., changing their nature between the short-and the long-runs. Moreover, the presence of long lags in the causal effect of corruption on FDI inflows carries the risk that policymakers (with their usual short-run policy horizon) may mistakenly infer that corruption is not harmful and fighting it is rather futile.
... of the rule of law. Contrary to expectations, Kersan-Skabic (2013) found out that among governance factors, only corruption has a significant negative impact on FDI inflows. Despite their anticipated importance, government effectiveness, rule of law, and political stability do not significantly influence FDI inflows. Maric and Kristina (2017) and Onody et. al (2022) suggest that in countries with rigid regulations and high levels of bureaucracy, corruption can paradoxically help to remove barriers and expedite investment processes. Erkekoglu and Kilicarslan (2016) and Byaro et. al (2022) discover that an increase in government effectiveness reduces FDI inflows. Similarly, a study by Daude and Stein ...
Foreign Direct investment (FDI) is recognized as a significant source of capital inflows that can stimulate economic growth in developing countries. In order to attract and benefit from FDI, governments have implemented various economic reforms and focused on improving governance indicators. This study investigated the causality effect of governance indicators on FDI inflows in Tanzania. The governance indicators examined in this study include; rule of law, regulatory quality, government effectiveness, control of corruption, voice and Accountability, political stability and absence of violence. Before measuring the causality effect between the variables, a stationarity, test was conducted using the Augmented Dickey-Fuller (ADF) test. Then the Granger Causality Test was used to address two-way linkages between variables. The data used in the study was secondary quantitative time series data obtained from the World Bank Worldwide Governance Indicators and the Bank of Tanzania from 1996 to 2021. The findings suggested a long-run causality running from governance indicators to FDI inflows in Tanzania. In the short run, voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption individually influence FDI inflows. Furthermore, the Granger causality test indicates that voice and accountability and political stability and absence of violence Granger cause FDI inflows. The other governance indicators also exhibited significant causality with FDI inflows. These results call for policy makers in Tanzania to focus on strengthening governance framework, ensure accountability, enhance investor protection, ensure political stability, promote the rule of law and prevent corruption in achieving increased FDI for sustained economic growth.
... Corruption, on the other hand, hinders financial progress. Corruption is often related to institutional weaknesses and is cited as a critical factor affecting FDI flows (Gossel, 2018;Appiah et al., 2022;Onody et al., 2022). In two competing perspectives, the role of corruption is called into doubt. ...
Pledges and commitments from governments of wealthy nations were made at the COP26 Glasgow summit, thereby rejuvenating hope among nations to confront the climate change challenge. Thus, the study examines the complementarity of financial development and carbon emissions, while accounting for the conditional influence of good governance under three disaggregated indicators – economic, institutional, and political governance for the BRICS, MINT, and the G7 economies. First, the study reveals that financial development depending on the adopted indicator has mixed effects on environmental pollution levels. Specifically, financial development triggers the highest pollution effect via domestic credit to the private sector compared to foreign direct investments, while financial development index reduces environmental pollution. Secondly, economic governance promotes environmental quality by reducing environmental pollution through quality regulation. Third, institutional governance through weaker rule of laws induces pollution, while the control of corruption antagonizes pollution levels. Furthermore, only the voice of accountability supports the pollution-mitigating effect of political governance. On a bloc-to-bloc comparative analysis, governance effectiveness promotes environmental pollution in all the three economic blocs albeit at different magnitudes while the voice of accountability exerts a significant desirable impact on pollution only in the G7 countries. Lastly, renewable energy and trade liberalization exerts a negative and positive influence on environmental degradation respectively.
... Consequently, businesses flourish and expand with an entry pass that would not be possible without it. Corruption can attract international investors because bribes can circumvent restrictions and laws, providing a "helping hand" to overseas investors [40]. ...
In recent years, analysts’ interest in understanding sustainability as a new and exclusive economic paradigm has been matched by the research for tools that might both promote and hinder it. In particular, innovation has been widely regarded for its beneficial effects on sustainability, whereas corruption has been regarded for its negative implications. This study adds to our understanding of these linkages by revealing that, depending on the nature of the sustainability targets, these important drivers can have varying effects. Therefore, using a sample of Italian firms, through SEM analysis, we estimate two latent variables representing innovation and corruption for their relationship with sustainability in two models, covering two sets of indicators (sustainable industrialization and sustainable employment and labour). Whereas both models’ results indicate that innovation and sustainability have a substantial positive link, the relationship between corruption and sustainability yields contradictory results. Furthermore, the findings show a negative relationship between innovation and corruption. As a result, the distinction between types of sustainability leads to a different interpretation of how their driving factors operate. This approach suggests the establishment of more tailored sustainability strategies, in line with the diverse consequences that may arise when corruption, innovation, and sustainability are at play.
... On the flip side, low levels of economic growth can increase corruption and reduce FDI inflows (Brazys et al., 2017). Although from a theoretical perspective corruption can either act as a "grabbing hand" (also referred to as "sand in the wheel") or a "helping hand" (also referred to as "grease in the wheel") for FDI inflow (Onody et al., 2022), there is anecdotal evidence that high corruption within the public service reduces FDI inflow. However, the empirical evidence of the impact of FDI inflow on corruption is convoluted. ...
The paper investigated the dynamic and causal relationship among corruption, foreign direct investment, and economic growth simultaneously, a largely overlooked area in empirical studies, using a dataset from Ghana. It is among the few studies that explore the confluence of these variables and therefore contributes to understanding the contextual realities of the impact of FDI inflow, an often-prioritised policy choice, on widely used measures of social coherence and welfare. The study employed a vector autoregressive (VAR) estimation approach to empirically explore the relationships among corruption, foreign direct investment, and economic growth. The findings suggest that there is a reverse causality among corruption, foreign direct investment, and economic growth. This indicates that these variables are complementary rather than contradictory. These findings imply that central government and policymakers should not pursue any of these variables as a policy goal, but rather treat them as complements when modelling or formulating economic policies. This means that policies aimed at promoting foreign direct investment will not jeopardize or compromise the control of corruption and economic growth and vice versa.
... Several studies support the helping hand theory suggesting that high levels of corruption can increase FDI inflows (B. A. Karim et al., 2018;Belloumi & Alshehry, 2021;Jan et al., 2019;Krifa-Schneider et al., 2022;Moustafa, 2021;Onody et al., 2022). Helmy (2013) investigated the impact of corruption on investment inflows in MENA countries from 2003 to 2009 using the panel Generalized Least Square (GLS) method. ...
... The results of the Johansen co-integration and VECM methods disclosed that corruption could cause positive FDI inflows. Onody et al. (2022) also supported the helping hand hypothesis, suggesting that corruption acts as grease for multinational corporations working in Brazil between 2012 and 2016. However, the evidence of a non-linear relationship between FDI and corruption suggests that only the Brazilian regions with medium levels of development and corruption attract FDI, suggesting that excessive levels of corruption and weak institutions can discourage the arrival of foreign firms. ...
Foreign direct investment (FDI) plays a vital role in boosting economic growth and providing more job opportunities. Hence, it is imperative to investigate the factors that can spur FDI inflows in the Southeast Asia region (ASEAN) and its three largest trading partners: China, Japan, and South Korea (ASEAN+3). Besides, whether corruption can boost or decrease FDI inflows, and whether larger environmental degradation triggers FDI inflows have been sparsely explored by previous studies. The panel Autoregressive Distributed Lag (ARDL) approach is employed to analyze the period from 1995 to 2020. The results show evidence of the grabbing hand hypothesis in ASEAN+3 as decreasing corruption can positively impact FDI inflows in the long run. However, the results support that increasing environmental degradation has spurred FDI in the region, suggesting reformulating investment promotion policies towards more environmentally friendly ones. These findings are important for policymakers to formulate the right policies for boosting FDI. Punishment for those who act in a corrupt manner may act as a deterrent to would-be offenders. Using more renewable energy could help to reduce environmental degradation and boost FDI simultaneously.
Purpose
This paper aims to study the impact of economic freedom and some key macroeconomic variables on the foreign direct investment (FDI) inflow in Brazil.
Design/methodology/approach
An econometric model is developed that includes FDI inflow as the dependent variable and macroeconomic variables such as the output, current account balance, the real exchange rate, openness and economic freedom as explanatory variables. Annual time series data from 1995 to 2022 is used. Before carrying out the estimation, the time series properties of the data are diagnosed using unit root tests and cointegration tests. Since the data series were found to be stationary in the first difference form and the variables in the model were cointegrated, an error correction model is developed and estimated.
Findings
The findings demonstrate that the size of the market (gross domestic product), current account balance and the economic freedom index significantly influence FDI inflow to Brazil. Although the signs of openness and the real exchange rate align with theoretical expectations, they do not attain statistical significance.
Originality/value
To the best of the authors’ knowledge, this is the first formal study on the impact of economic freedom on the FDI inflow in Brazil. The finding of this study adds value to the understanding of FDI dynamics in Brazil, highlighting the critical role of economic freedom and market size in attracting foreign investment.
The present study aimed to investigate the relationship between corruption control, government effectiveness and banking stability in 21 countries during the period of 2003–2019. The study used many estimators to overcome heterogeneity and endogeneity issues as well as diagnostic tests to increase robustness. The unit root test results showed that all variables were stationary. The Pedroni, Kao and Westerlund cointegration test results supported the rejection of the null hypothesis of no cointegration, confirming the long-run effects of corruption control and government effectiveness on banking stability. In addition, FMOLS and DOLS were used to control endogeneity. The dynamic panel data estimator results revealed a significant negative relationship between corruption control, government effectiveness and banking stability in high-income countries. The low-income country results indicated that the opposite scenario was true for most estimations. The middle- and high-income country results were the same for the corruption control, government effectiveness and banking stability nexus but different for government effectiveness and banking stability. The main conclusions of the study were that countries with high corruption control enhance banking stability growth by employing the grease the wheels hypothesis under high levels of government effectiveness and countries with low corruption control impede banking stability growth by applying the sands the wheels hypothesis under low levels of government effectiveness.
