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).
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.
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.
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.
This research is sponsored by Foreign Trade University under The Project: Firm’s behavior and adaptation in the context of international integration.
The authors of this article have not made their research data set openly available. Any enquiries regarding the data set can be directed to the corresponding author.
Luu, H.N., Nguyen, N.M., Ho, H.H. and Nam, V.H. (2019), "The effect of corruption on FDI and its modes of entry", Journal of Financial Economic Policy, Vol. 11 No. 2, pp. 232-250. https://doi.org/10.1108/JFEP-05-2018-0075Download as .RIS
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