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International Journal of Economics and Financial
Issues
ISSN: 2146-4138
available at http: www.econjournals.com
International Journal of Economics and Financial Issues, 2022, 12(5), 71-77.
International Journal of Economics and Financial Issues | Vol 12 • Issue 5 • 2022 71
Foreign Direct Investment, Public Sector Venality and
Entrepreneurship Development in Developing Countries
Obey Dzomonda1*, Collins C. Ngwakwe2
1Department of Research Administration and Development, University of Limpopo, South Africa, 2Graduate School of Leadership,
Faculty of Management and Law, University of Limpopo, South Africa. *Email: obey.dzomonda@ul.ac.za
Received: 21 June 2022 Accepted: 02 September 2022 DOI: https://doi.org/10.32479/ijefi.13586
ABSTRACT
This paper evaluates the relationship between foreign direct investment (FDI) and entrepreneurship development in developing countries. The paper
also analyses the intervening eect of public sector venality jointly with the FDI’s eect on entrepreneurship growth in developing countries. The paper
applied a quantitative research method. Secondary data collection covered 9 years (2016-2019). Data related to FDI were collected from the World Bank
database while data for public sector corruption were collected from the Transparency International Corruption Index. Data related to entrepreneurship
development were collected from the Global Entrepreneurship Monitor (GEM) reports. The sample consisted of nine developing countries which resulted
in 36 observations. Data were analysed with the application of xed eect regression. The results showed that foreign direct investment positively predicts
entrepreneurship development in developing countries. Additionally, the ndings showed that public sector venality negatively aects entrepreneurship
growth in developing countries. The practical signicance of these ndings includes the need for developing countries to place pragmatic emphasis on
the continuous attraction of foreign direct investment to accelerate the positive spill-over eect of foreign direct investment on local entrepreneurs, which
comes with skills and technology advantages – amongst others. There is a dire need for governments in developing countries to rethink their approach
toward eradicating public sector venality, which this research has conrmed as inimical to the nurturing and development of local entrepreneurship. This
paper recommends an agenda for further research to explore the current model by including more samples and more time series in future analysis models.
Keywords: Foreign Direct Investment, Entrepreneurship, Developing Countries, Employment, Public Administration
JEL Classication: L26; F21; F23; D73
1. INTRODUCTION
Entrepreneurship is increasingly gaining prominence globally
(Herrington and Coduras, 2019). This is because the public
sector cannot keep pace with labour supply, resulting in
unprecedented unemployment levels in most developing countries
(Madzivhandila and Musara, 2020). As such, entrepreneurship
is considered a key strategy to boost economic growth due to
the linkages in economic activities (Madzivhandila and Musara,
2020). President Ceril Ramaphosa also emphasized this view
in his SONA speech of 2022 (Meyer and Meyer, 2022). In this
case, President Ceril Ramaphosa indicated that the private sector,
through small business activities, is responsible for creating jobs
while the government enables such activities to thrive (Meyer
and Meyer, 2022). Essentially, entrepreneurship is premised on
aiding developing economies to reduce poverty, unemployment,
and income inequality (Musara et al., 2020), given that it is
associated with innovation and creativity currently lacking in the
public sector. Nevertheless, entrepreneurship development is still
relatively low in developing countries compared to developed
countries (Rajamani et al., 2022). This is worrying, given that most
developing countries experience severe socio-economic problems
(Dvouletý and Orel, 2019). With the coming of Covid-19, most
developing countries’ economies weakened severely, exposing
citizens to a myriad of economic hardships. The authors of this
paper believe that entrepreneurship can play a critical role in
This Journal is licensed under a Creative Commons Attribution 4.0 International License
Dzomonda and Ngwakwe: Foreign Direct Investment, Public Sector Venality and Entrepreneurship Development in Developing Countries
International Journal of Economics and Financial Issues | Vol 12 • Issue 5 • 2022
72
revitalizing developing economies and redirecting the economies
to the projected fast growth. For this to happen, entrepreneurship
drivers should be clearly identied, assisting policymakers to work
with what can bear the expected results. Historically, developing
countries have used funds generated locally to steer economic
growth (Asongu et al., 2018). However, this has never achieved
the expected milestones as entrepreneurs in developing countries
continue to struggle to raise capital (Osano and Koine, 2016). As
such, the lack of startup capital remains one of the top challenges
facing entrepreneurs in developing countries (Atiase et al., 2018).
In this study, the researchers identify foreign direct investment
(FDI) as a sustainable source of startup capital for local
entrepreneurs. The argument is that developing countries receive
impressive amounts of FDI annually (Asongu et al., 2018). Hence,
leveraging this strategy can bring a turning point in entrepreneurship
development in developing countries. Tülüce and Doğan (2014)
concur and express that FDI is an essential source of capital for
entrepreneurs. FDI is also credited for skills development and new
technology spill-overs, which can enhance the competitiveness
of local entrepreneurs (Magombeyi and Odhiambo, 2017). FDI
also enhances business innovation and creativity, which are
vital aspects of entrepreneurship, especially from a developing
country’s perspective (Sivalogathasan and Wu, 2014). Hence, if it
can be established that FDI enhances entrepreneurial activity, it can
aid developing countries in crafting policies that attract FDI into
their countries. Nevertheless, other country-specic factors such as
public sector corruption (Puiu, 2015) can also inuence the growth
of entrepreneurial activities in developing countries. For instance,
the public sector level of transparency regarding the disbursement
of funds meant for developing entrepreneurs can aect total
early-stage entrepreneurial activities in developing countries (van
den Berg and Noorderhaven, 2016). The argument is that public
administration ocers are the custodian of funds meant for any
form of development in the country (Williams and Martinez-Perez,
2016). Nevertheless, several developing countries continue to
battle issues of corruption where public funds are misused (Ezebilo
et al., 2019). The public ocials are often involved in initiating
bribes (Puiu, 2015), misusing the public oce for their gains, and
state capture, among others (Lekubu and Sibanda, 2021). Existing
ndings regarding corruption and entrepreneurship development
are inconclusive. Other scholars believe that corruption greases
entrepreneurial activities (Oladotun and Shakir, 2021), while
another strand of scholars argues that corruption is detrimental as
it retards growth in all economic activities (Audretsch et al., 2021).
Hence, it is crucial to uncover the eect of public sector corruption
on entrepreneurship development in developing countries.
There is limited research regarding the importance of FDI
towards entrepreneurship development in developing countries
(Herrington and Coduras, 2019). In South Africa, only one
study by Nxazonke and van Wyk (2019) investigated this
relationship. The limitation of this study is that it only focused
on South Africa. The present research nuances itself by linking
FDI and entrepreneurship development using several developing
countries. Additionally, this study tests the eect of public sector
corruption on entrepreneurship development within developing
countries. This study generates new empirical evidence that
governments in developing countries can use to negotiate terms
favouring entrepreneurship development when signing investment
agreements with Multi-National Companies (MNCs). The ndings
of this study also generate economic data, which can be helpful
for policymakers and academia for future research. Therefore,
this paper aims to evaluate the relationship between foreign direct
investment (FDI) and entrepreneurship development in developing
countries. Furthermore, the article analyzes the intervening
eect of public sector venality jointly with the FDI’s eect on
entrepreneurship growth in developing countries.
2. LITERATURE REVIEW
2.1. Entrepreneurship Development in Developing
Countries
The concept of entrepreneurship is widely acknowledged as a critical
driver of economic performance (Madzivhandila and Musara,
2020). Many scholars have explored this concept in developed and
developing countries. They have conrmed that it is helpful at an
individual level or when entrepreneurship occurs within a corporate
setting (Abdelka and Refas, 2021). Based on that understanding,
developing countries have started initiating and implementing this
strategy in their search for sustainable solutions to their socio-
economic challenges (Hamdan et al., 2021). Ideally, entrepreneurial
activities can help developing countries attain sustainable
development goals (Abdelka and Refas, 2021). This view is
supported by Neumann (2021), who reported that entrepreneurial
activities could contribute at a macro level if well harnessed. On that
account, Neumann (2021) argues that scholars should not adopt a
simplistic approach when reporting on the impact of entrepreneurial
activities. The authors of this article express that the debate about
entrepreneurship should shift from whether it works to how best this
strategy can be deployed? This is because entrepreneurship can bring
the much-desired economic transformation in developing countries
(Gindling and Newhouse, 2014). Entrepreneurs eciently mobilize
and utilize resources compared to the public sector (Hamdan et al.,
2022). This means developing countries can attain massive strides
in dealing with issues such as unemployment and poverty because
entrepreneurs are known to creatively balance these resources to
create new ventures which are engines of economic activity (Hamdan
et al., 2022). Nasrallah and El Khoury (2022) draw attention to the
larger share of jobs created by small businesses to justify the reason
why governments in developing countries should leverage and
harness the potential of entrepreneurs.
Essentially, entrepreneurs are known for introducing new
technology and innovation, which boost productivity at the country
level (Schumpeter, 1942). The innovation can be in the form of
new production processes and products that can be competitive in
foreign markets (Schumpeter, 1942). If an enabling environment
is created, entrepreneurs can develop and broaden the private
sector needed for economic renewal (Derbali and Lamouchi,
2021). Abdelka and Refas (2021) believe that entrepreneurship
can help developing countries be resilient in times of uncertainty,
such as the Covid-19 pandemic. Thus, entrepreneurial activities
can help absorb the shocks of the pandemic on a relatively
shorter turnaround time compared to large businesses (Abdelka
and Refas, 2021). Other studies report that entrepreneurship in
Dzomonda and Ngwakwe: Foreign Direct Investment, Public Sector Venality and Entrepreneurship Development in Developing Countries
International Journal of Economics and Financial Issues | Vol 12 • Issue 5 • 2022 73
developing countries is critical for local economic development,
which could be challenging to attain with only public sector
parastatals (Mwatsika, 2022). In this case, Neumann (2021)
reasons that policy makers must distinguish between progressive
and weak entrepreneurs to achieve the expected impact from
funding entrepreneurs.
Notwithstanding their crucial role towards economic renewal,
entrepreneurs in developing countries operate under several
constraints, resulting in most of them failing to attain the
expected impact (Mwatsika, 2022). Among other factors, the
World Bank (2021) submits that most formal and informal small
businesses are still struggling to access funding to establish and
grow their businesses. There has been an ongoing conversation
regarding this challenge for the past decade, but nothing has
changed as many small businesses are still nancially excluded
(Rajamani et al., 2022). According to Rajamani et al. (2022), this
retards progress in pursuing growth as most small businesses
struggle to raise capital to fund their operations. Another study
by Hamdan et al. (2022) expressed that most entrepreneurs are
under-capacitated, yet the government and other stakeholders
expect much from them. Entrepreneurs operate under red tape,
poor infrastructure, and weak institutions that struggle to create
an enabling environment for entrepreneurial activities to bud
and blossom (Hamdan et al., 2022), causing a high business
discontinuance rate in developing countries. On that account, other
scholars such as Abdelka and Refas (2021) express the view
that policymakers should identify key determinants inuencing
entrepreneurship in their countries. This is crucial because each
developing country has unique circumstances based on its culture,
policies, and level of institutional development (Aparicio et al.,
2022). Likewise, Jabeur et al. (2022) argued that countries should
also pay attention to factors in the macro-environment when trying
to nd ways to boost entrepreneurship. A signicant number
of studies predominantly focused on the individual factors to
understand entrepreneurship development (Jabeur et al., 2022).
2.2. Foreign Direct Investment Inows in Developing
Countries
As indicated by Asongu, Akpan, and Isihak (2018), most Multi-
National Companies from developed economies prefer to invest
in developing countries because of the size of the market in
these countries. Several developing countries have liberalized
their economies to attract more FDI (Anetor et al., 2020). For
instance, African countries have enacted the African Continental
Free Trade Agreement (AfCFTA) to facilitate trade amongst
themselves (Anetor et al., 2020). Asongu et al. (2018) also noted
that developing countries in the BRICS and the MINT (Mexico,
Indonesia, Nigeria, and Turkey) had developed favourable policies
to attract FDI. Such a move toward enhancing trade openness was
based on the understanding that FDI can help these developing
countries solve their economic problems.
Generally, most developing countries record a significant
proportion of FDI inows each year (World Investment Report,
2013). These usually ow from developed countries compared
to their other developing counterparts. According to the World
Investment Report (2013), developing countries received more
than 50% of the FDI in 2012. It is reported that the FDI was more
pronounced in fast-growth economies in the BRICS and MINT
(Mexico, Indonesia, Nigeria, and Turkey) (Asongu et al., 2018).
According to Asongu et al. (2018), the FDI inows continued
to rise from 2001 to 2012 in both the BRICS and the MINT
developing countries. In 2018, FDI inows to Africa grew by 11%
from the previous year. More pronounced growth was recorded
in Sub-Saharan and Southern Africa (World Economic Report,
2019). This positive trend was also noted by Sookram et al. (2022),
who reported that FDI inows in Sub-Saharan Africa have been
growing exponentially from 1970-2019.
Interestingly, Zhenwei et al. (2021) noted that FDI inows from
other African countries and Asia also boost FDI in Africa. Ideally,
FDI from Asia, mainly China, has increased to challenge FDI
inows from Europe, which has been dominant for a long time
(Zhenwei et al., 2021). Nevertheless, it remains questionable
regarding the extent to which this FDI is transforming the
economies of these developing countries (Moran et al., 2017).
Accordingly, Moran et al. (2017) argue that developing countries
should thrive on attracting quality FDI rather than just quantity.
FDI must be tailored to the developmental needs of the host
country (Moran et al., 2017). A study by Zhenwei et al. (2021)
noted that developing countries could benet immensely by
leveraging on FDI to rebuild their economies post the Covid-19
pandemic.
2.3. Theoretical Framework and Hypothesis
Development
2.3.1. Foreign direct investment and entrepreneurship development
The positive and negative spill-over eects hypothesis better
explains the relationship between FDI and local entrepreneurship
development. These are contrasting views on the eect of FDI on
local entrepreneurship development. As such, each viewpoint is
supported by a strand of scholars. Other studies have contrasted
knowledge spill-over and crowding effects theories to help
understand the link between FDI and local entrepreneurship
development (Pathak, Laplume and Xavier-Oliveira, 2015).
This paper’s scope is to cross-examine this relationship from
a developing country perspective. This is crucial as the study’s
context may aect the link between these two variables (Pathak
et al., 2015).
Considering the positive spill-over eects hypothesis, Albulescuab
and Tămăşilăa (2014) assessed the eect of FDI on entrepreneurship
development using 16 European countries. Interestingly, the study
indicated that inward FDI positively predicts entrepreneurship
development. The study emphasized that it is mainly opportunity-
driven entrepreneurs who benefit most from FDI inflows.
Nxazonke and van Wyk (2019) also concurred and reported that
FDI positively boosts entrepreneurship in the host country. The
study established that FDI predicts entrepreneurship development
in both the short and long-run periods. Their analysis made
pertinent recommendations for the host country to create an
enabling environment for start-up businesses. Onwuka and
Chigozie (2014) assessed the link between FDI and domestic
entrepreneurship. Employing time series data from 1990-2013,
the study found that FDI signicantly predicts entrepreneurial
Dzomonda and Ngwakwe: Foreign Direct Investment, Public Sector Venality and Entrepreneurship Development in Developing Countries
International Journal of Economics and Financial Issues | Vol 12 • Issue 5 • 2022
74
development. The authors emphasized that FDI inows capacitate
local entrepreneurs through knowledge transfers, capital, and new
technology. This shows that local entrepreneurship can blossom
given that the government creates a conducive environment that
does not expose young entrepreneurs to unfair competition from
MNCs. Osano and Koine (2016) assessed the link between FDI
and technology transfer in Kenya. The study found that FDI is
crucial in developing local businesses through new technology
spill-overs. Furthermore, the authors submitted that developed
countries have advanced technology that can uplift African small
businesses’ competitiveness. This is because new technology can
enhance eciency among local companies. It should be also noted
that new technology is at the heart of entrepreneurship as it spurs
creativity in this sector.
On the other hand, the negative spill-over eects hypothesis argues
that FDI can negatively aect entrepreneurship development
due to crowding out (Budang and Hakim, 2019). Furthermore,
the existing literature shows that well-established MNCs may
force nascent entrepreneurs out of business through aggressive
marketing and low prices since they enjoy economies of scale
(Misra et al., 2014). These local entrepreneurs still nd it hard
to occupy strategic marketplaces where they can easily attract
customers.
All in all, this study argues that FDI inows can unlock several
opportunities for local entrepreneurs. These include access to new
technology, gaining critical skills that can help them successfully
run their businesses, and subcontracting opportunities that oer
them sustainable markets for their products and services. Other
opportunities may include exploiting the supply chain networks
established by Multinational Companies. Other scholars also
support this view. For example, Tran and Le (2019) also assessed
the eect of FDI on entrepreneurship development within emerging
markets. Even though the study indicated that governance issues
are also vital to this relationship, it was established that inward FDI
spurs entrepreneurial growth in emerging markets. FDI enhances
business innovation in the entire supply chain. This is achievable
through new business ideas, process innovation, and the adoption
of cutting-edge technology (Loukil, 2016). Alzaidy et al. (2017)
concur and assert that FDI enhances technological developments,
which augments eciency. This is one of the critical drivers
of entrepreneurship development. Entrepreneurs will likely
benet from spillover eects from FDI inows (Loukil, 2016).
Entrepreneurs can benet signicantly from foreign investors’
world-class standards and skills (Diyamett and Mutambla, 2014).
Msweli (2015) remarks that FDI allows for a smooth transfer
of technology and other advanced industrial skills from foreign
rms to the local populace. Consistent with the positive spill-
over hypothesis, the authors of this study advance the argument
that host countries can benet immensely from negotiating FDI
terms inclined towards boosting local entrepreneurial businesses.
Ideally, if well harnessed, FDI has the potential to promote
entrepreneurship activities in developing countries. It is from this
background that the following hypothesis is stated;
H1: Foreign direct investment positively predicts entrepreneurial
development within selected developing countries.
2.3.2. Public sector venality and entrepreneurship development
Public sector corruption is a global phenomenon, even though
the corruption level diers from country to country (Sartor and
Beamish, 2020). The Transparency International Corruption
Index (2021) also further claried that the types of corruption in
each country may also vary besides dierent levels of corruption.
Regardless of the class, Sartor and Beamish (2020) argued that
corruption weakens the ability of nations to meet sustainable
development goals. In this case, corruption threatens humanity
and should be dealt with effectively (Sartor and Beamish,
2020). Sadly, the incidences of corruption are relatively higher
in developing countries than in developed ones (Transparency
International Corruption Index, 2021). The Transparency
International Corruption Index (2021) further noted that countries
in Sub-Saharan Africa still need to commit to eorts to eradicate
corruption as the public sectors in these countries still rank high
in terms of corruption. Corruption thrives in countries with no
accountability for those involved in such acts (Bitterhout and
Simo-Kengne, 2020). The worst part is that corruption is often
normalized in some countries, making it dicult to deal with
(Fleming et al., 2022).
The public sector has a bearing on entrepreneurial activities
since the government, through its different institutions and
workers, is responsible for setting and implementing policies to
boost business activities (Bitterhout and Simo-Kengne, 2020).
Public administration is a crucial determinant of entrepreneurial
activities. This is because it provides the context through which
entrepreneurial activities occur (Oladotun and Shakir, 2021).
Broadly, the public administration is responsible for implementing
public policy (Audretsch et al., 2021). The public administration
is responsible for creating a climate that can create pull or push
factors for entrepreneurs (Audretsch et al., 2021). Audretsch et al.
(2021) further noted that corruption weakens the eectiveness
of government support programmes toward entrepreneurship
development. Specically, corruption may increase the cost of
doing business for entrepreneurs who are forced to pay exorbitant
bribes to secure a contract. Due to the rent-seeking behaviour of
some public oce ocials (Lekubu and Sibanda, 2021), corruption
may end up depriving entrepreneurs of essential resources meant to
aid them in growing their businesses. Another view is that public
sector corruption can discourage potential investors interested in
investing in high-growth entrepreneurial companies (Ezebilo et al.,
2019). This aects entrepreneurs because they require funds to
expand their businesses (Alsagr and van Hemmen, 2021). Hence,
it can be argued that corruption in most developing countries has
retarded progress in entrepreneurship development. Building
on a study by Audretsch (2021), who empirically found that
corruption negatively aects the activities of opportunity and
necessity entrepreneurs, we argue that corruption is a barrier to
entrepreneurship development in developing countries. The view
that corruption greases the entrepreneurship development wheel
is detrimental to entrepreneurship development because bribes
exhaust a business’s cash ows, resulting in failure. Therefore,
we hypothesize that;
H2: Public sector corruption negatively inuences entrepreneurship
development within selected developing countries
Dzomonda and Ngwakwe: Foreign Direct Investment, Public Sector Venality and Entrepreneurship Development in Developing Countries
International Journal of Economics and Financial Issues | Vol 12 • Issue 5 • 2022 75
3. METHODOLOGY
This study is conducted within the developing country context.
According to OECD (2020), developing countries are confronted
with many developmental challenges, making them lag in terms
of sustainable development. This means eective policies to
resolve such issues ought to be contextualized to these countries’
developmental stages and needs (OECD, 2020). The current study
used a quantitative research method using panel data collected
from 2016-2019. In this case, secondary data was collected
for 4 years from 2016-2019. Data related to FDI was collected
from the World Bank database from 2016-2019. Additionally,
data related to corruption was collected from the Transparency
International Corruption Index from 2016-2019. On the other hand,
data related to entrepreneurship development was collected from
the Global Entrepreneurship Monitor (GEM) reports from 2016-
2019. Only developing countries which consistently participated in
the GEM from 2016-2019 were considered. The sample consisted
of 9 developing countries. This resulted in a panel of (9x4) giving
36 observations. To measure entrepreneurship development, the
researchers used each country’s Total Early-Stage Entrepreneurial
Activity. Public sector corruption was measured using a corruption
perception index compiled by the Transparency International
Corruption Index. Net inows (% of GDP) was used to measure FDI.
The data were analysed with the application of xed eect panel
regression, and the results are presented in the following sections.
4. RESULTS AND DISCUSSION
The analysis was conducted at two levels; the rst level in Table 1
evaluated the relationship between foreign direct investment
and entrepreneurship development in the sample of developing
countries. Therefore, Table 1 results sought to test research
hypothesis 1.
The results show that at an alpha level of 0.05(5%), FDI inuences
entrepreneurship development with a P-value of 0.00226 and
a positive coecient of 2.33166. As hypothesized earlier, this
shows that, within the sample of this study, FDI has a signicant
and positive relationship with entrepreneurship development in
developing countries. This nding corroborates the earlier ndings
(Diyamett and Mutambla, 2014 Nxazonke and van Wyk, 2019),
who found that local entrepreneurs benet from skills introduced
by foreign investors. Likewise, Osano and Koine (2016) found
that FDI is crucial in developing local businesses through
new technology spill-overs from Multi-national companies.
Furthermore, the ndings concur with the positive spill-over
eects hypothesis theory (Albulescuab and Tămăşilăa, 2014).
Table 2 presents the second-level analysis, wherein we introduced
the eect of public sector corruption into the analysis to see if
the result supports hypothesis 2, which asserts that public sector
corruption negatively inuences entrepreneurship development
in developing countries. Tested at an alpha of 0.05(5%), public
sector corruption produces a P-value of 0.00493 with a negative
regression coecient of –0.4111. Figure 1 presents the Q-Q
plots, showing the close relationship between FDI, public sector
corruption, and entrepreneurship development in developing
countries. Accordingly, this nding conrms research hypothesis
2, which asserts that public sector corruption negatively inuences
entrepreneurship development within selected developing
countries. Table 2 also shows that public sector corruption limits
the ecacy of FDI on entrepreneurship development; this is
visible from the somewhat reduced signicance level of FDI
with the introduction of public sector corruption in Table 2. This
nding regarding the negative eect of public sector corruption on
entrepreneurship conrms the results of earlier researchers such
as Ezebilo et al. (2019), who opine that public sector corruption
can discourage potential investors interested in investing in
high-growth entrepreneurial businesses in developing countries.
Other findings show that public administration is essential
for entrepreneurship given that it provides the nurturing for
entrepreneurship through its institutions (Bitterhout and Simo-
Kengne, 2020; Oladotun and Shakir, 2021). Therefore, weakened
public institutions would yield a counter result on entrepreneurship
development, as demonstrated in Table 2 of these results.
Table 1: Model 1: Fixed‑eects, using 36 observations
Included 9 cross-sectional units
Time-series length = 4
Dependent variable: Ent_Develop
Coecient SE t-ratio P-value
const 8,4305 1,68661 4,9985 0,00003***
FDI 2,33166 0,68843 3,3869 0,00226***
Mean
dependent var
13,50833 S.D.
dependent var
5,082877
Sum squared
resid
558,7188 S.E. of
regression
4,635643
R-squared 0,382117 Adjusted
R-squared
0,168235
F (9, 26) 1,786577 p-value (F) 0,119403
Log-
likelihood
-100,4401 Akaike
criterion
220,8802
Schwarz
criterion
236,7153 Hannan-
Quinn
226,4071
rho 0,002487 Durbin-
Watson
1,456827
Table 2: Model 1: Fixed‑eects, using 36 observations
Included 9 cross-sectional units
Time-series length=4
Dependent variable: Ent_Develop
Coecient Std. Error t-ratio P-value
const 25.1063 5.60156 4.4820 0.00014***
FDI 1.48062 0.658168 2.2496 0.03352**
PublicCor -0.4111 0.133293 -3.0842 0.00493***
Mean
dependent var
13.50833 S.D.
dependent var
5.082877
Sum squared
resid
404.7259 S.E. of
regression
4.023560
R-squared 0.552417 Adjusted R-
squared
0.373384
F (10. 25) 3.085555 -value (F) 0.010792
Log-
likelihood
–94.63623 Akaike
criterion
211.2725
Schwarz
criterion
228.6912 Hannan-
Quinn
217.3520
rho -0.230945 Durbin-
Watson
1.855128
Dzomonda and Ngwakwe: Foreign Direct Investment, Public Sector Venality and Entrepreneurship Development in Developing Countries
International Journal of Economics and Financial Issues | Vol 12 • Issue 5 • 2022
76
5. CONCLUSION
This paper evaluated the relationship between foreign direct
investment (FDI) and entrepreneurship development in developing
countries. The study also broadened the analysis further by
introducing the intervening effect of public sector venality
jointly with the FDI’s eect on entrepreneurship development in
developing countries. This approach became apposite given the
apparently slight prior literature on the combined eect of FDI and
public sector venality on entrepreneurship in developing countries.
Overall, this paper contributes a novelty, which is dierent from
prior research approaches, by introducing the eect of public
sector corruption in developing countries on entrepreneurship
development. The public sector venality was worth investigating
because essential local support to entrepreneurship development
often comes from the government sector institutions. Hence, a
weakened public sector eciency via venality becomes a point
of concern that runs counter to the objective of growing nascent
entrepreneurship in developing countries using foreign direct
investment.
Given the aim of the research, it proceeded to test the two research
hypotheses which are: (1) Foreign direct investment positively
predicts entrepreneurial development within selected developing
countries, and (2) Public sector corruption negatively inuences
entrepreneurship development within selected developing
countries. The ndings from Tables 1 and 2 conrm the research
hypotheses and show that foreign direct investment positively
predicts entrepreneurship growth in developing countries and
that public sector corruption negatively aects the much-desired
entrepreneurship development. The practical signicance of
these ndings includes the need for developing countries to place
pragmatic emphasis on the continuous attraction of foreign direct
investment to accelerate the positive spill-over eect of foreign
direct investment on local entrepreneurs, which comes with skill
and technology advantages – amongst others. There is also a dire,
urgent need for governments in developing countries to rethink
their approach to plummeting and possibly eradicating public
sector venality, which this research has conrmed as inimical
to nurturing local entrepreneurship. The ubiquity of public
sector venality also fractures the eectiveness of foreign direct
investment, as this research has shown that, in the presence of
public sector venality, the functional eect of FDI is weakened
(Table 2 – with reduced P-value of FDI). This is because the public
institutions are responsible for managing foreign direct investment,
hence, ostensive venal activities in managing FDI would impede
the actualization of desired entrepreneurship development. This
paper opens an agenda for further research to expand this inquiry
by including more developing countries and more time series in
the analysis to see how the results can hold with more samples
and years into the analysis.
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