Revisiting the nexus among foreign direct investment, corruption and growth in developing and developed markets

Abstract

This study examines the dynamic association among foreign direct investment (FDI), corruption and economic growth. The study applies a panel vector autoregressive (PVAR) model to the context of the generalized method of moments estimation technique to determine the relationships in 54 developed and developing countries over the period of 1996–2018. The findings suggest that the control of corruption negatively (positively) affects inward FDI and economic advancement in developing (developed) countries, suggesting that weak (strong) institutional quality and higher (lower) corruption boost investments and economic development. The study further finds that economic growth and corruption have a positive bidirectional relationship for developing countries and negative unidirectional association for developed countries. Besides, the bidirectional linkage of FDI with corruption and economic growth is observed in both developed and developing countries. The findings are elicited through a series of robustness tests, including two-step system generalized method of moments. The results provide policy implications to government and regulatory authorities.