Question

Based on journal articles (minimum 15) critically review the impacts of corruption on foreign direct investment. You should include latest journal articles (from 2015 to present) to make your argument constructive enough to support your discussions. The review should include purpose, method and findings with proper citations.

Answer 1

iMost irecent idevelopment iand ieconomic itheories iargue ithat iFDI iis ibeneficial ifor ieconomic igrowth iand ithat icorruption idamages ieconomic igrowth. iYet, iit iis ionly irecently ithat iresearch istarted ilooking iat ithe ieffects iof icorruption ion iFDI. iThis iarticle iidentifies ithe ineed ito iformulate ia idefinition iof icorruption ithat iencompasses iall iform iof icorruption ias ithey iappear iin ithe icontext iof iFDI. iEarlier ifindings ias iwell ias ithe icorruption iindices iused iin iresearch ishall iserve ias ithe ibackbone ifor ithis iarticle's ifindings. i icorruption ihas ion iFDI iflows iand ib) ithe idistinction ibetween ithe iinfluence ithat icorruption imay ihave ion ia iforeign idirect iinvestor's idecision ito ienter ithe ihost icountry ion ione ihand, iand ito icontinue iits iactivities iin ithe ihost icountry ion ithe iother.

Corruption iis inot ieasy ito idefine. iAlthough ithey iconcur ithat ithe icentral ielement iof icorruption iinvolves ithe iuse iof ipublic ioffice ifor iprivate igain, ithe iexact iforms iof icorruption ithat ifall iunder ithis icategory iis ihardly ian iobjective imatter.

A idefinition iof icorruption ithat ifits ithe iFDI icontext iand, ithus, ionly icovers ithe iforms iof icorruption ithat imatter iin ithe iFm icontext iis icurrently inon-existent. iOther idefinitions iof icorruption, ie.g. iThe idefinition iof icorruption iused iby ithe the iOECD iConvention ihas ia ifew iimportant iweaknesses.

Globalization iand iFDI

One iof ithe imost inotable ifeatures iof ieconomic iglobalization ihas ibeen ithe iincreased iimportance iof iforeign idirect iinvestment iaround ithe iworld..

In ideveloping ieconomies, igovernments ibelieve ithat iFDI iwill ihelp ieconomic idevelopment iand itherefore itry ito iattract iFDI ithrough ipolicies iand iinvestment iincentives idesigned ito iincrease iinvestors’ iinterest.

Corruption iand iFDI

The iuneven idistribution iof iFDI iin ideveloping ieconomies imay ilimit ithe ipotential ifor igrowth; itherefore iit iis iimportant ito itry ito iunderstand ithe ireasons ifor ithis idiscrepancy. iOne iof ithe iexplanations ifor ithe ilow ilevel iof iFDI iflow iin isome icountries iis ithe ihigh ilevel iof icorruption ithat iexists iin ithem.

Corruption iwithin ithe ipolitical isystem iis ia ithreat ito iforeign iinvestment. iBy ienabling ipeople ito iassume ipositions iof ipower ithrough ipatronage irather ithan iability, iit iintroduces iinherent iinstability iinto ithe ipolitical iprocess ithereby idistorting ithe ieconomic iand ifinancial ienvironment.

Corruption ican iaffect ievery isector iand ilevel iof ithe igovernment, ifrom ithe itop iexecutive, ilegislative iand ijudicial ibranches idown ito iregional iand ilocal iofficials, ithereby ireducing iits iefficiency. iIt ipresents itherefore ia ipotential ithreat ito iall isectors iand iinstitutions iwithin ia icountry.

Corruption iis ia icomplex iphenomenon ito imeasure.Using ithese idata ischolars iare inow iable ito iexamine ithe irelationship ibetween icorruption, ieconomic igrowth, iand iFDI.

iThe icountries imeasured iare irated ion ia iscale ifrom i1-10, iwhere i1 iis ivery icorrupt iand i10 iis ithe ileast icorrupt.

Corruption ican iaffect iFDI idirectly iby itarnishing ithe iperception iof ia icountry’s istability iand iquality iof ian iinvestment ipotential. iForeign iinvestors iperceive icorruption ias ian iimpediment ito iinvesting iin ithe ihost icountry.

Debates ion ithe ieffect iof icorruption

Corruption iis iseen ias ian iextra icost ifor ioperations. iHowever, ithe ieffect iof icorruption ion ieconomic igrowth, iand imore ispecifically ion iFDI, ihas ibeen isubject ito idebate. iSome iargue ithat, ibribes iact ias ispeed imoney iand ihelp iavoid ibureaucratic iinefficiencies. iCorruption iis ialso iclaimed ito ihave ia ibeneficial iface iwhich iis iknown ias i“greasing ithe iwheel”.

In iother iwords, iwhile icorruption ihas iharmful ilong-term ieffects, iit ican ibring ieconomic igrowth iin ithe ishort iterm. iAlso, iin ithe icase iof ideveloping icountries, iwhere igovernments iare iinefficient, icorruption imay ibe ithe ionly iway ito iencourage iinvestment iby ioffering ialternative iways ito iconduct ibusiness.

ithe iBusiness iInternational i(BI) iindices ihave ibeen iused ito iargue ithat icorruption idoes iin ifact ihurt igrowth iand iinvestment.

corruption ican iaffect iFDI idirectly iby iruining ithe iperception iof istability iand iquality iof ian iinvestment ipotential iin ihost icountries. iInvestors imay iprefer inot ito iinvest ibecause iof iextra icosts. iForeign iinvestors igenerally iavoid iengaging iin icorruption ibecause iit iis iconsidered iwrong iand iit ican icreate ioperational iinefficiencies.

One ishould ibe icareful, ihowever, iabout igeneralizing ithe icauses iand ieffects iof icorruption ito iall icountries. iCorruption ican ibecome ivery imuch ia ipart iof ia icountry‘s ilife iand ithe icauses iand ieffects ican ibe iseen iin iits ihistory iand isociety.

Since ithere iare idifferent itypes iof icorruption, ithere iare ialso idifferent isolutions.