Does corruption hampers inward FDI in South Africa from other African countries? a gravity model analysis

Mosikari, Teboho Jeremiah and Nthebe, Tselane Confidence and Eita, Joel Hinaunye (2018): Does corruption hampers inward FDI in South Africa from other African countries? a gravity model analysis.

Abstract

The purpose of this paper is to investigate the relationship between corruption and FDI inflows from other African countries to South Africa. The study uses gravity model and employs panel data econometric technique such as pooled, fixed and random effects model. The results indicate that there is a significant negative relationship between corruption and FDI inflows from other African countries to South Africa. This implies that policy makers in South Africa should implement measures to curb corruption. This will help in attracting FDI inflows from other African countries and encourage the creation of job opportunities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Corruption, FDI inflows, Panel gravity model
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B40 - General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F2 - International Factor Movements and International Business

References

Al Sadig, A. (2009), “The Effects of Corruption on FDI Inflows”, CATO Journal, 29(2), 267-294.

Alemu, A. M. (2012), “Effects of Corruption on FDI Inflow in Asian Economies”, Seoul Journal of Economics, 25(4), 387-412.

Amarandei, C.M. (2013), "Corruption and Foreign Direct Investment. Evidence from Central and Eastern European States", CES Working Papers, Vol. 5(3), 311-322.

Argandona, R. A. (2007), “The United Nations Convention against Corruption and Its Impact on International Companies”, Journal of Business Ethics, 74(4), 481-496.

Bayar Y. and N. Alakbarov (2016), “Corruption and Foreign Direct Investment Inflows in Emerging Market Economies”, ECOFORUM, 5(1), 305-308.

Bellos, S. and T. Subasat (2012), “Corruption and Foreign Direct Investment: A Panel Gravity Model Approach”, Bulletin of Economic Research, 64(4), 565–574.

Breitung, J. (2000), The Local Power of Some Unit Root Tests for Panel Data, in: B. Baltagi (ed.), “Advances in Econometrics, Vol. 15: Nonstationary Panels, Panel Cointegration, and Dynamic Panels”, JAI Press: Amsterdam.

Castro, C. and P. Nunes (2013), “Does corruption inhibit foreign direct investment?”, Politica/Revista de Ciencia Politica. 51(1), 61-83.

Craigwell, R. and A. Wright (2007), “Foreign Direct Investment and Corruption in Developing Countries: Evidence from Linear and Non-linear Panel Granger Causality Tests”, Economics Bulletin. 31(3), 2272-2283.

Egger, P. and H. Winner (2006), “How Corruption Influences Foreign Direct Investment: A Panel Data Study”, Economic Development and Cultural Change, 54(2), 459-486.

Helmy, H.E. (2013), “The Impact of Corruption on FDI: Is MENA an Exception? International Review of Applied Economics. 27(4):491-514.

Hossain, S. (2016), “Foreign Direct Investment (FDI) and Corruption: Is it a Major Hindrance for Encouraging Inward FDI?” Africa Journal of Business Management, 10(10), 256-269.

Kersan-Škabić, I. (2013), “Institutional Development as a Determinant of FDI Attractiveness in Southeast Europe”, Drustvena Istrazivanja, 22(2), 215-235.

Levin, A., C.F. Lin and C. Chu (2002), “Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties”, Journal of Econometrics, 108, 1–24.

Myint, U. (2000), “Corruption: Causes, Consequences and Cures”, Asia-Pacific Development, 7(2), 33-58.

Pupovic, E. (2012), “Corruption’s Effect on Foreign Direct Investment - The case of Montenegro”, Journal of Economics and Business, 10(2), 13-28.

Rahim M. and R.M. Quazi (2014), “Corruption and Foreign Direct Investment in East Asia and South Asia: An Econometric Study”, International Journal of Economics and Financial Issues, 4(2), 231-242.

Saidi, Y., A. Ochi and H. Ghadri (2012), “Governance and FDI Attractiveness: Some Evidence from Developing and Developed Countries”, Global Journal of Management and Business Research Finance, 13(6), 14-24.

Samimi, Y. and M. Monfared (2011), “Corruption and FDI in OIC Countries”, Information Management and Business Review, 2(3), 106-111.

Tinbergen, J. (1962), Shaping the World Economy: Suggestions for an International Economic Policy, New York: Twentieth Century Fund. The first use of a gravity model to analyze international trade flows.

Westerlund, J. (2008), “Panel Cointegration Tests of the Fisher Effect”, Journal of Applied Econometrics, 23(2), 193-223.

Woo, J.Y. (2010), “The Impact of Corruption on a Country’s FDI attractiveness; A Panel Data Analysis, 1984-2004”, Journal of International Area Studies, 17(2), 71-91.