THE IMPACTS OF CORRUPTION ON ATTRACTING FOREIGN DIRECT INVESTMENT

Abstract

Investment is a macroeconomic variable and its well-known as the engine of economy that boosts economic growth, economic development and sustainable development. Investment plays an important role in the livelihood welfare of citizens. All economies require different types of investments particularly Foreign Direct Investment/ FDI in different sectors. Based on empirical researches, mostly FDI has positive impacts on the sustainable economic growth of the host economies. On one hand, FDI transfers technologies, skills, innovations, experiences, techniques and knowledge to the host economies. On the other hand, it provides host economies with stable financial resources for long period of time. Thus, it is the responsibility of governments to open their borders toward FDI inflows in order to attract this valuable financial resource. Despite the fact that countries require FDI but corruption is one of the main obstacles against it. Theoretically, there is a negative correlation between corruption and FDI inflows. In other words, corruption negatively impacts the FDI inflows and decreases FDI volume. Because, corruption increases costs and decreases benefits of FDI, corruption deteriorates the competitive trade environment; corruption discourages foreign investors through protecting domestic investors and corruption negatively effects the productivity of foreign investors. In practice, although most of the empirical researches showed that corruption negatively impacts the FDI flows. But some empirical researches also confirmed that there is a positive correlation between corruption and FDI flows. Hence, countries are responsible in fighting against corruption to attract more FDI and in return benefits their sustainable economic growth.