The Impact of Domestic Corruption on Foreign Direct Investment: An Empirical Analysis of Five Sub-Saharan African Countries

Gertrude Eguae-Obazee, DBA, CPA, Farhad Saboori, Ph. D.

Department of Business, Accounting, & Economics

Albright College

Emails:

tobazee@albright.edu

fsaboori@albright.edu

 

Abstract

Corruption is a worldwide problem hindering economies through several channels which include, but are not limited to, a reduction in domestic and foreign direct investments, the misallocation of budgetary funds for education, health, and infrastructure. Based on a sample of five sub-Sahara African states between 2000 and 2014, panel data is used to determine the causal effect that a country’s level of corruption has on foreign direct investment (FDI) inflows.  Of particular interest are the negative effects of level corruption on the amount of FDI flowing to Angola, Botswana, Ghana, Nigeria, and South Africa. The results robustly confirm that corruption negatively impacts FDI inflows into these economies.  The results also support previous studies that, credit availability, the level of human capital, the inflation rate, infrastructure, political instability, and the extent of the urban population are found to be important in attracting FDI to host countries. The results generally imply that the governments of these countries need to strongly and strictly enforce their anti-corruption laws while developing the levels of human capital and infrastructure.

 

JEL Classification: C33, F21, F31, F34