The impact of foreign direct investment on corruption: A cross-sectional time series data analysis

Corruption has been studied widely and has been perceived to damage the economies of both developed and developing countries. There have been an enormous number of studies explaining how corruption has affected various variables including Foreign Direct Investment (FDI). However, little research, with the exception of Robertson and Watson (2004), has been undertaken to empirically examine the impact that changes in foreign direct investment has on corruption, where corruption is the dependent variable. Robertson and Watson (2004) looked at two years in their analysis. This study, however, contributes to the current research by examining the effects of changes of FDI on corruption while, at the same time, examining the effects that changes in GDP per capita, changes in democratic accountability, and changes in rule of law have on corruption over a twenty year period. The study uses a cointegration analysis using an error correction model on data for 145 countries using 22 years of data. In addition, the study uses stepwise regression to examine the effects of changes in FDI, GDP per capita, rule of law, and democratic accountability have on corruption. The study also tests whether changes in GDP per capita, rule of law and democratic accountability have a moderating effect on the relationship between FDI and corruption using cross-sectional time series data analysis.