The effect of corruption on foreign direct investment in natural resources: A Latin American case study

Vol: 
98/2021
Author name: 
Cruz MD
Sedai AK
Year: 
2021
Month: 
December
Abstract: 

This study looks at the relationship between corruption and foreign direct investment (FDI) in natural resources using a panel of 20 Latin American countries from 1995-2019. We find that lower levels of corruption have a positive and significant impact on resource FDI supporting the grabbing hand hypothesis. A one-point increase in the Corruption Perception Index (CPI) is associated with an increase between 52-57 million dollars across models with varying controls. Results also show a nonlinear relationship between CPI and resource FDI, suggesting that when a country becomes less corrupt and improves its economic, social and political performance, it usually attracts more resource FDI. The analysis is robust to alternate measures of corruption (CPI, ICRG, and WGI) and different specifications of the dynamic panel model. Finally, the study highlights significant precautions and pre-conditions required to increase economic development when attracting natural resource-based FDI.

Publication file: 

Updated:  15 August 2022/Responsible Officer:  Crawford Engagement/Page Contact:  CAMA admin