CORRUPTION AND FDI: A REGIONAL STUDY OF DEVELOPING SOUTHEAST ASIAN COUNTRIES

Abstract

This paper examines the empirical relationship between corruption and foreign direct investment (FDI) in developing countries of Southeast Asia. Difference General Method of Moments (GMM) is utilized to take advantage of fixed effects, the influence of the dependent variable on its future variables, and potential reverse causality between the dependent variable and independent variables. While the extant literature on corruption and FDI have produced conflicting results, this study finds that corruption does not help or hinder inflows of FDI. Developing countries in the region should take note and reallocate limited resources away from corruption programs if they are primarily used to increase FDI.