Saturday, October 15, 2016: 9:20 AM
In these days of globalization and economic/financial liberalization in many countries around the globe, new opportunities abound for firms to take advantage of global diversification in production and distribution that may be profit leading. Knowing that these foreign direct investments (FDI) constitute a major conduit for technological transfers which can boost economic growth through their labor-augmenting capabilities, many countries therefore actively seek foreign firms and investors. Foreign direct investment flows depend, however, on many factors, some of which are idiosyncratic to specific countries and may define the attractiveness and success of the foreign firms. One such factor is corruption which has always had a repulsive connotation and thus is seen as a deterrent to FDI flows. Using a panel of eleven African countries and data that spans from 2000 to 2014, this study investigates whether or not corruption actually deters FDI. The result from the study show a positive and statistically significant relationship between corruption and FDI flows. The result thus implies that firms perhaps do understand the extent of corruption in many countries and therefore factor that into their cost of doing business even before venturing.
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