Question

In what ways might corruption influence the amount of foreign direct investment that a country receives?

Answer 1

When there is corruption in an economy, the economy does not function freely as it prevents the natural laws of economy. In the present of corruption the market structure become monopolies or oligopolies. As we know that in Monopoly and oligopoly the market operates below the efficient level of output. So the foreign investment will decrease in the present of corruption.

Along with this if there is corruption in the economy the political system will not be stable and some politician will easily misuse their power leading to instability in the economy. If the economy is unstable then there will be risk of loosing money, so there will be no foreign investment. So it can be said that foreign direct investment depends on the corruption level in an economy. If the corruption level is high there will be low foreign investment and if the corruption level is low then there will be high foreign investment.