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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 25, No. 4, pp.387-412
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2012
Received 02 Feb 2012 Revised 22 Jul 2012 Accepted 25 Jul 2012

Effects of Corruption on FDI Inflow in Asian Economies

Aye Mengistu Alemu
Assistant Professor, SolBridge International School of Business, 151-13 Samsung 1-dong, Dong-gu, Daejeon 300-814, Korea, Tel: +82-10-9818-2327, Fax: +82-42-630-8510 ayem2011@solbridge.ac.kr

JEL Classification: C1, M16, O15, O17, O40, P10

Abstract

This study offers fresh insights on and investigates the effects of corruption on foreign direct investment (FDI) inflow from 1995 to 2009 in 16 Asian economies. The empirical result suggests that a 1 percent increase in corruption level triggers an approximately 9.1 percentage point decrease in FDI inflow. Thus, some of the arguments that corruption does not keep FDI out of corrupt countries are either flawed or invalid. The results of this study suggest that some of the countries characterized by a high level of corruption but have remarkable FDI inflows could even double their inward FDIs if they manage to reduce the present pervasive level of corruption.

Keywords:

Corruption, FDI inflow, Panel data, REM, FGLS, Economic growth, Openness, Human capital

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