The Effects Of Corruption And Democracy On Foreign Direct Investment

Foreign direct investment (FDI) plays a critical role in fostering economic development. Its importance has grown among the developing countries. Democracy and corruption are among the many factors that African leaders believe affect the inflow of FDI to the natural resource endowed continent, Africa.This study examines the effects of Democracy and Corruption on Foreign Direct Investment. The study was necessitated by the conflicting existing research results on the subject. In the existing research, some scholars have found a positive relationship between democracy and FDI while others have found a negative or no relationship between them. Similar results exist between corruption and FDI. This study argues that the results could have been conflicting because earlier researchers did not investigate the effects of corruption and democracy on different types of FDI. The empirical analysis contained 50 African countries with the data from 1989 to 2013. The results of the logistic regression show that resource-seeking FDI is more likely to invest in less democratic states than market or efficiency seeking FDIs. Democracy has negative correlation with resource seeking FDI. Corruption shows positive relationship with resource seeking FDI. The study found that democracy and corruption affect the three categories of FDI differently.