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EFFECT OF CORRUPTION ON FDI IN TRANSITION ECONOMIES: EVIDENCE FROM CAUSALITY ANALYSIS

Year 2017, Issue: 19, 25 - 42, 30.03.2017
https://doi.org/10.18092/ulikidince.296977

Abstract

New opportunities are emerging for
countries which want to invest abroad with the diffusion of globalization. Most
countries lay emphasis on some factors which make them profitable to attract
foreign direct investment for possible sustainable economic growth. The
decision of a company which is investing in foreign countries instead of their
country can be explained with various reasons
. Countries with least corruption level provide convenient
atmosphere for foreign investors. These countries are expected to attract
desired amount of FDI.
Within this
perspective, corruption and FDI relation for Central and Eastern (1996-2013)
and former Soviet Union (1998-2013) countries called “Transition Economies”
were analyzed separately in this study. At first, a positive effect of
corruption on FDI was found and then a negative effect
emerged, this relation was unidirectional and from corruption to FDI.
According to findings of this study, raising foreign
direct investment inflows is seen as an important strategy for countries to
reduce corruption.




References

  • Abed, G. T. and Davoodi, H. R. (2000). Corruption, Structural Reforms, and Economic Performance in the Transition Economies. Imf Working Paper, No: 00/132.
  • Ağayev, S. and YamaK, N. (2009). Bağımsız Devletler Topluluğu Ülkelerinde Ekonomik Büyümenin Belirleyicileri. Atatürk University Faculty of Economic and Administrative Sciences Journal, 23(4), 179-204.
  • Al-Sadig, A. (2009). The Effects of Corruption on FDI Inflows. Cato Journal, 29(2), 267-294.
  • Bal, H. (2003). Geçiş Ekonomilerinde Ekonomik Performans Ve Yatırım İklimindeki Gelişmelere Bir Bakış. Manas University International Symposium of Transition Countries on Transition Period of Primary Market Economies.
  • Bardhan, P. (1997). Corruption And Development: A Review of Issues. Journal of Economic Literature, 35(3), 1320-1346.
  • Bevan, A. A. and Estrin, S. (2000). The Determinants of Foreign Direct Investment in Transition Economies. CEPR Discussion Paper, No: 2638.
  • Bevan, A., Estrin S. and Meyer, K. (2004). Foreign Investment Location and Institutional Development in Transition Economies. International Business Review, 13(1), 43-64.
  • Biglaiser, G. and Derouen, K. (2006). Economic Reforms and Inflows of Foreign Direct Investment in Latin America. Latin American Research Review, 41(1), 51-75.
  • Brouthers, L.E., Gao, Y. and Mcnicol, J.P. (2008). Corruption and Market Attractiveness Influences on Different Types of FDI. Strategic Management Journal, 29(6), 673–680.
  • Busse, M. A. and Hefeker, C. (2007). Political Risk, Institutions and Foreign Direct Investment. European Journal of Political Economy, 23(2), 397–415.
  • Caetano, J. A. and Calelro, A. (2009). Is There A Relationship Between Transparency in Economic and Political Systems Aad Foreign Direct Investment Flows?. The Icfai University Journal of Applied Economics, 8(2), 45-58.
  • Castro, C. A. and Nunes, P. (2013). Does Corruption Inhibit Foreign Direct Investment?. Politica / Revista De Ciencia Politica, 51(1), 61-83.
  • Craıgwell, R. A and Wright, A. (2011). Foreign Direct Investment and Corruption in Developing Economies. Evidence from Linear and Non-Linear Panel Granger Causality Tests. Economics Bulletin, 31(3), 2272-2283.
  • Cuervo-Cazurra, A. (2006). Who Cares About Corruption?. Journal of International Business Studies, 37(6), 807-822.
  • Cuervo-Cazurra, A. (2008). Better The Devil You Don't Know: Types Of Corruption and FDI in Transition Economies. Journal of International Management, 14(1), 12–27.
  • Dahlström, T. A. and Andreas, J. (2007). Bureaucratic Corruption, Mnes and FDI. Royal Institute Of Technology, CESIS-Centre Of Excellence For Science And Innovation Studies, No. 82.
  • Della Porta, D. A and Vanucci, A. (1999). Corrupt Exchanges, Actors, Resources and Mechanisms of Political Corruption, 1st Edition, New York, NY.
  • Dumitrescu, E. I. A. and Hurlin, C. (2012). Testing For Granger Non-Causality in Heterogeneous Panels. Economic Modelling, 29(4), 1450-1460.
  • Egger P. A. and Winner H. (2005). Evidence On Corruption As an Incentive for Foreign Direct Investment. European Journal of Political Economy, 21(4), 932–952.
  • Egger, P. A. and Winner, H. (2006). How Corruption Influences Foreign Direct Investment: A Panel Data Study. Economic Development and Cultural Change, 54(2), 459-486.
  • Gani, A. (2007). Governance and Foreign Direct Investment Links: Evidence From Panel Data Estimations. Applied Economics Letters, 14(10), 753–756.
  • Habib, M. A. and Zurawicki L. (2001). Country-Level Investments and The Effect of Corruption Some Empirical Evidence. International Business Review, 10(6), 687–700.
  • Haksoon, K. (2010). Political Stability and Foreign Direct Investment. International Journal of Economics And Finance, 2(3): 59-71.
  • Hellman, J. S., Jones, G. A. and Kaufmann, D. (2000). Are Foreign Investors and Multinationals Engaging in Corrupt Practices in Transition Economies?. Stockholm Institute for Transition Economies , 11(3-4), 4-7.
  • Hines, J. (1995). Forbidden Payment: Foreign Bribery and American Business After 1977. National Bureau of Economic Research (NBER) Working Paper, No:5266.
  • Im, K. S., Pesaran, M. H. A. and Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53-74.
  • Javorcik, B. S. A. and Wei, S-J. (2009). Corruption and Cross-Border Investment in Emerging Markets: Firm-Level Evidence. Journal of International Money and Finance, 28(4), 605-624.
  • Keefer, P. A. and Knack, S. (1995). Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures. Economics and Politics, 7(3), 207-227.
  • Ketkar, K. W., Murtuza, A. A. and Ketkar, S.L. (2005). Impact of Corruption On Foreign Direct Investment And Tax Revenues. Journal of Public Budgeting, Accounting & Financial Management, 17(3), 313-341.
  • King, A. K. (2003). The Link Between Foreign Direct Investment and Corruption in Transitional Economies. Carleton University, Ottawa/Ontario, 2003.
  • Kinoshıta, Y. A. and Campos, N. F. (2003). Why Does FDI Go Where It Goes? New Evidence from the Transition Economies. William Davidson Institute Working Paper, No. 573.
  • Koyuncu, J. Y. (2011). Yargı Bağımsızlığı, Mülkiyet Hakkı Ve Yolsuzluğun Yabancı Sermaye Girişleri Üzerindeki Etkisi. Dumlupınar University Journal of Social Sciences, 29(29), 143-148.
  • Lucas, R. E., (1990). Why Doesn’t Capital Flow From Rich To Poor Countries?. American Economic Review, 80(2), 92-96.
  • Maddala, G. S. A. and Wu, S. (1999). A Comparative Study Of Unit Root Tests With Panel Data And A New Simple Test. Oxford Bulletin of Economics And Statistics, 61(1), 631-652.
  • Mathur, A. A. and Singh, K. (2013). Foreign Direct Investment, Corruption and Democracy. Applied Economics, 45(8), 991-1002.
  • Mauro, P. (1995). Corruption And Growth. Quarterly Journal of Economics, 110(3), 681-712.
  • Mauro, P. (1996). The Effects of Corruption on Growth, Investment, and Government Expediture. International Monetary Fund, IMF Working Paper No: 96/98.
  • Pedroni, P. (1999). Critical Values For Cointegration Tests in Heterogeneous Panels With Multiple Regressors. Oxford Bulletin of Economics and Statistics, 61(1), 653-670.
  • Pedroni, P. (2000). Fully Modified OLS For Heterogeneous Cointegrated Panels. Advances in Econometrics, 15, 93-130.
  • Pedroni, P. (2001). Purchasing Power Parity Tests in Cointegrated Panels. Review of Economics And Statistics, 83(4), 727-731.
  • Pedroni, P. (2004). Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests With an Application to the PPP Hypothesis. Econometric Theory, 20(3), 597-625.
  • Primorac, D. A. and Smoljic, M. (2011). Impact of Corruption on Foreign Direct Investment. Megatrend Review, 8 (2), 169-190.
  • Reiter, Sandy L. A H. and Kevin, S. (2010). Human Development and Foreign Direct Investment in Developing Countries: The Influence of FDI Policy and Corruption. World Development, 38(12), 1678-1691.
  • Rose-Ackerman, S. (1999). Corruption and Government: Causes, Consequences, And Reform, 1st Edition Cambridge, UK.
  • Samadi, S., Fathi, S. A. and Tahmasebi, S. (2011). Impact of Foreign Direct Investment on Financial Development Present to Political Corruption in the Countries of D- 8. Interdisciplinary Journal of Contemporary Research In Business, 3(5), 445-450.
  • Smarzynska, B. K. A. and Wei, S. J. (2000). Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence, NBER Working Paper, No.7969.
  • Tandırcıoğlu, H. A. and Özen, A. (2003). Geçiş Ekonomilerinde Doğrudan Yabancı Sermaye Yatırımları. Dokuz Eylül University Journal of the Institute of Social Sciences, 5(4), 105-129.
  • Tosun, M.U., Yurdakul, M.O. A. and İyidoğan P. V. (2014). The Relationship Between Corruption and Foreign Direct Investment Inflows in Turkey: An Empirical Examination Transylvanian. Review of Administrative Sciences, 10(42), 247-257.
  • Popper, K. (1996). Transparency International. The TI Source Book, Berlin.
  • UNCTAD (United Nations Conference On Trade And Development), (1998). World Investment Report: Trends And Determinants. New York And Geneva.
  • Wu, S-Y. (2006). Corruption and Cross-Border Investment by Multinational Firms. Journal of Comparative Economics, 34(4), 839-856.
  • Zurawicki, L. A. and Habib, M. (2010). Corruption And Foreign Direct Investment: What Have We Learned?. The International Business & Economics Research Journal, 9(7), 1-9.

EFFECT OF CORRUPTION ON FDI IN TRANSITION ECONOMIES: EVIDENCE FROM CAUSALITY ANALYSIS

Year 2017, Issue: 19, 25 - 42, 30.03.2017
https://doi.org/10.18092/ulikidince.296977

Abstract

Küreselleşme ile birlikte yurt dışında yatırım yapmak
isteyen firmalara yönelik olarak yeni fırsatlar ortaya çıkmaktadır. Çoğu ülke
ekonomik büyümeyi sürdürülebilir kılmak için DYY’yi (Doğrudan Yabancı
Yatırımlar) çekmede avantajlı konumda olduğu bazı faktörler üzerinde
durmaktadır. Bir firmanın kendi ülkesi dışında başka ülkede yatırım yapma
kararı farklı gerekçelerle açıklanabilir. Fakat en az yolsuzluk seviyesine
sahip ülkelerden yatırımlar için daha elverişli bir yatırım iklimi
sağlamasından dolayı arzu edilen miktarda DYY çekebilmesi beklenmektedir. Bu
bakış çerçevesinde çalışmada yolsuzluk ve DYY arasındaki ilişki “Geçiş
Ekonomileri” olarak adlandırılan Orta ve Doğu Avrupa ülkeleri (1996-2013) ile
Eski Sovyetler Birliği ülkeleri (1998-2013) için panel veri yöntemi ile ayrı
ayrı araştırılmıştır. Çalışmada yolsuzluğun DYY üzerinde önce pozitif ardından
negatif bir etkisi olduğu görülmüş ve bu ilişkinin yolsuzluktan DYY’ye doğru
tek yönlü olduğu bulgusuna ulaşılmıştır. Çalışmanın bulgularına göre ülkelerin
DYY girişlerini artırmaları için yolsuzluğun azaltılması önemli bir strateji
olarak görülmektedir.




References

  • Abed, G. T. and Davoodi, H. R. (2000). Corruption, Structural Reforms, and Economic Performance in the Transition Economies. Imf Working Paper, No: 00/132.
  • Ağayev, S. and YamaK, N. (2009). Bağımsız Devletler Topluluğu Ülkelerinde Ekonomik Büyümenin Belirleyicileri. Atatürk University Faculty of Economic and Administrative Sciences Journal, 23(4), 179-204.
  • Al-Sadig, A. (2009). The Effects of Corruption on FDI Inflows. Cato Journal, 29(2), 267-294.
  • Bal, H. (2003). Geçiş Ekonomilerinde Ekonomik Performans Ve Yatırım İklimindeki Gelişmelere Bir Bakış. Manas University International Symposium of Transition Countries on Transition Period of Primary Market Economies.
  • Bardhan, P. (1997). Corruption And Development: A Review of Issues. Journal of Economic Literature, 35(3), 1320-1346.
  • Bevan, A. A. and Estrin, S. (2000). The Determinants of Foreign Direct Investment in Transition Economies. CEPR Discussion Paper, No: 2638.
  • Bevan, A., Estrin S. and Meyer, K. (2004). Foreign Investment Location and Institutional Development in Transition Economies. International Business Review, 13(1), 43-64.
  • Biglaiser, G. and Derouen, K. (2006). Economic Reforms and Inflows of Foreign Direct Investment in Latin America. Latin American Research Review, 41(1), 51-75.
  • Brouthers, L.E., Gao, Y. and Mcnicol, J.P. (2008). Corruption and Market Attractiveness Influences on Different Types of FDI. Strategic Management Journal, 29(6), 673–680.
  • Busse, M. A. and Hefeker, C. (2007). Political Risk, Institutions and Foreign Direct Investment. European Journal of Political Economy, 23(2), 397–415.
  • Caetano, J. A. and Calelro, A. (2009). Is There A Relationship Between Transparency in Economic and Political Systems Aad Foreign Direct Investment Flows?. The Icfai University Journal of Applied Economics, 8(2), 45-58.
  • Castro, C. A. and Nunes, P. (2013). Does Corruption Inhibit Foreign Direct Investment?. Politica / Revista De Ciencia Politica, 51(1), 61-83.
  • Craıgwell, R. A and Wright, A. (2011). Foreign Direct Investment and Corruption in Developing Economies. Evidence from Linear and Non-Linear Panel Granger Causality Tests. Economics Bulletin, 31(3), 2272-2283.
  • Cuervo-Cazurra, A. (2006). Who Cares About Corruption?. Journal of International Business Studies, 37(6), 807-822.
  • Cuervo-Cazurra, A. (2008). Better The Devil You Don't Know: Types Of Corruption and FDI in Transition Economies. Journal of International Management, 14(1), 12–27.
  • Dahlström, T. A. and Andreas, J. (2007). Bureaucratic Corruption, Mnes and FDI. Royal Institute Of Technology, CESIS-Centre Of Excellence For Science And Innovation Studies, No. 82.
  • Della Porta, D. A and Vanucci, A. (1999). Corrupt Exchanges, Actors, Resources and Mechanisms of Political Corruption, 1st Edition, New York, NY.
  • Dumitrescu, E. I. A. and Hurlin, C. (2012). Testing For Granger Non-Causality in Heterogeneous Panels. Economic Modelling, 29(4), 1450-1460.
  • Egger P. A. and Winner H. (2005). Evidence On Corruption As an Incentive for Foreign Direct Investment. European Journal of Political Economy, 21(4), 932–952.
  • Egger, P. A. and Winner, H. (2006). How Corruption Influences Foreign Direct Investment: A Panel Data Study. Economic Development and Cultural Change, 54(2), 459-486.
  • Gani, A. (2007). Governance and Foreign Direct Investment Links: Evidence From Panel Data Estimations. Applied Economics Letters, 14(10), 753–756.
  • Habib, M. A. and Zurawicki L. (2001). Country-Level Investments and The Effect of Corruption Some Empirical Evidence. International Business Review, 10(6), 687–700.
  • Haksoon, K. (2010). Political Stability and Foreign Direct Investment. International Journal of Economics And Finance, 2(3): 59-71.
  • Hellman, J. S., Jones, G. A. and Kaufmann, D. (2000). Are Foreign Investors and Multinationals Engaging in Corrupt Practices in Transition Economies?. Stockholm Institute for Transition Economies , 11(3-4), 4-7.
  • Hines, J. (1995). Forbidden Payment: Foreign Bribery and American Business After 1977. National Bureau of Economic Research (NBER) Working Paper, No:5266.
  • Im, K. S., Pesaran, M. H. A. and Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53-74.
  • Javorcik, B. S. A. and Wei, S-J. (2009). Corruption and Cross-Border Investment in Emerging Markets: Firm-Level Evidence. Journal of International Money and Finance, 28(4), 605-624.
  • Keefer, P. A. and Knack, S. (1995). Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures. Economics and Politics, 7(3), 207-227.
  • Ketkar, K. W., Murtuza, A. A. and Ketkar, S.L. (2005). Impact of Corruption On Foreign Direct Investment And Tax Revenues. Journal of Public Budgeting, Accounting & Financial Management, 17(3), 313-341.
  • King, A. K. (2003). The Link Between Foreign Direct Investment and Corruption in Transitional Economies. Carleton University, Ottawa/Ontario, 2003.
  • Kinoshıta, Y. A. and Campos, N. F. (2003). Why Does FDI Go Where It Goes? New Evidence from the Transition Economies. William Davidson Institute Working Paper, No. 573.
  • Koyuncu, J. Y. (2011). Yargı Bağımsızlığı, Mülkiyet Hakkı Ve Yolsuzluğun Yabancı Sermaye Girişleri Üzerindeki Etkisi. Dumlupınar University Journal of Social Sciences, 29(29), 143-148.
  • Lucas, R. E., (1990). Why Doesn’t Capital Flow From Rich To Poor Countries?. American Economic Review, 80(2), 92-96.
  • Maddala, G. S. A. and Wu, S. (1999). A Comparative Study Of Unit Root Tests With Panel Data And A New Simple Test. Oxford Bulletin of Economics And Statistics, 61(1), 631-652.
  • Mathur, A. A. and Singh, K. (2013). Foreign Direct Investment, Corruption and Democracy. Applied Economics, 45(8), 991-1002.
  • Mauro, P. (1995). Corruption And Growth. Quarterly Journal of Economics, 110(3), 681-712.
  • Mauro, P. (1996). The Effects of Corruption on Growth, Investment, and Government Expediture. International Monetary Fund, IMF Working Paper No: 96/98.
  • Pedroni, P. (1999). Critical Values For Cointegration Tests in Heterogeneous Panels With Multiple Regressors. Oxford Bulletin of Economics and Statistics, 61(1), 653-670.
  • Pedroni, P. (2000). Fully Modified OLS For Heterogeneous Cointegrated Panels. Advances in Econometrics, 15, 93-130.
  • Pedroni, P. (2001). Purchasing Power Parity Tests in Cointegrated Panels. Review of Economics And Statistics, 83(4), 727-731.
  • Pedroni, P. (2004). Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests With an Application to the PPP Hypothesis. Econometric Theory, 20(3), 597-625.
  • Primorac, D. A. and Smoljic, M. (2011). Impact of Corruption on Foreign Direct Investment. Megatrend Review, 8 (2), 169-190.
  • Reiter, Sandy L. A H. and Kevin, S. (2010). Human Development and Foreign Direct Investment in Developing Countries: The Influence of FDI Policy and Corruption. World Development, 38(12), 1678-1691.
  • Rose-Ackerman, S. (1999). Corruption and Government: Causes, Consequences, And Reform, 1st Edition Cambridge, UK.
  • Samadi, S., Fathi, S. A. and Tahmasebi, S. (2011). Impact of Foreign Direct Investment on Financial Development Present to Political Corruption in the Countries of D- 8. Interdisciplinary Journal of Contemporary Research In Business, 3(5), 445-450.
  • Smarzynska, B. K. A. and Wei, S. J. (2000). Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence, NBER Working Paper, No.7969.
  • Tandırcıoğlu, H. A. and Özen, A. (2003). Geçiş Ekonomilerinde Doğrudan Yabancı Sermaye Yatırımları. Dokuz Eylül University Journal of the Institute of Social Sciences, 5(4), 105-129.
  • Tosun, M.U., Yurdakul, M.O. A. and İyidoğan P. V. (2014). The Relationship Between Corruption and Foreign Direct Investment Inflows in Turkey: An Empirical Examination Transylvanian. Review of Administrative Sciences, 10(42), 247-257.
  • Popper, K. (1996). Transparency International. The TI Source Book, Berlin.
  • UNCTAD (United Nations Conference On Trade And Development), (1998). World Investment Report: Trends And Determinants. New York And Geneva.
  • Wu, S-Y. (2006). Corruption and Cross-Border Investment by Multinational Firms. Journal of Comparative Economics, 34(4), 839-856.
  • Zurawicki, L. A. and Habib, M. (2010). Corruption And Foreign Direct Investment: What Have We Learned?. The International Business & Economics Research Journal, 9(7), 1-9.
There are 52 citations in total.

Details

Journal Section Table of Contents
Authors

Oktay Kızılkaya

Publication Date March 30, 2017
Published in Issue Year 2017 Issue: 19

Cite

APA Kızılkaya, O. (2017). EFFECT OF CORRUPTION ON FDI IN TRANSITION ECONOMIES: EVIDENCE FROM CAUSALITY ANALYSIS. Uluslararası İktisadi Ve İdari İncelemeler Dergisi(19), 25-42. https://doi.org/10.18092/ulikidince.296977

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