The Effect of Corruption on Foreign Direct Investments in Developing Countries

Using panel data, this paper will empirically test the relationship between the levels of perceived corruption and the net foreign direct investments (FDI) inflows as a fraction of the GDP across several developing countries over a period of seven years. It is hypothesized that increased corruption translates into a decrease in net FDI inflows. If this relationship manifests as predicted, there are more incentives for low and middle income economies to intensify their efforts in the anti-corruption programs in order to attract more FDI, reduce poverty and foster economic growth and development. This study looks at the relationship between perceived corruption as an institutional factor and the net foreign direct investment inflows