The Effect of Corruption and Country Risk on Fdi Inflows: Empirical Evidence From Developing Countries

The aim of this study is to empirically analyze the effect of corruption and country risk on foreign direct investment (FDI) inflows. The study was carried out using the data of 49 developing countries for the 2002–2015 period. Relationships between the variables were investigated by static and dynamic panel data methods. This empirical analysis revealed the following general findings: i) a decline in corruption and country risk positively affects FDI inflows; ii) financial risk, which is a component of country risk, has no significant effect on FDI inflows, whereas a fall in the level of economic and political risk accelerates FDI inflows; iii) FDI inflows are most sensitive to economic risk. Based on these results, it can be said that developing countries can attract more FDI by creating a quality institutional structure, effectively fighting corruption, and creating sound macroeconomic policies that improve the investment climate and reduce cost, uncertainty, and risk perception.