The impact of corruption on FDI inflows in Asian developing countries

Abstract

This paper measures the relationship between corruption and FDI inflows across 27 Asian developing countries from 2011–2020. We also measure the moderating effect of investment freedom and trade openness to examine how investment freedom and trade openness affect the relationship between corruption and FDI inflows. First, we find the corruption level is negatively associated with the FDI inflows for medium & lowincome countries. However, there is no evidence to prove this relationship in high & upper-income countries. Secondly, we find that the relationship between corruption and FDI inflows is significantly influenced by investment freedom. In other words, FDI inflows of countries with high investment freedom are negatively affected by corruption less than countries with low investment freedom. However, the result is also insignificant for the high & upper-income groups. Thirdly, there is no evidence that trade openness moderates the relationship between corruption and FDI inflows; as a result, it is insignificant in full models.