Corruption and Foreign Direct Investment Attractiveness in Asia

There have been debates on how political corruption may affect foreign direct investment (FDI) attractiveness. Some scholars argue that corruption increases economic uncertainty due to arbitrariness and thereby affects FDI negatively. On the other hand, another group of scholars contends that corruption leads to greater FDI because it can create a business environment that is more friendly to foreign investors. In this article, we empirically test the relationship between the level of corruption and FDI attractiveness in eight non‐OECD (Organisation for Economic Co‐operation and Development) Asian countries (Bangladesh, India, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, and Thailand) using data for the perceived corruption level (according to the International Country Risk Guide data set) available from Political Risk Services, a private international investment risk service company, for 1984–2004. The analysis reveals that corruption in non‐OECD countries in Asia generally harms FDI attractiveness.