The Dynamic Linkage between Corruption Index and Foreign Direct Investment: The Case of Developed and Developing Countries

Abstract

In today’s competitive business world, attracting foreign investment and creating investors friendly environment is highly important. MNCs invest in countries where they have the best economies of scale. Corruption is one of the factors deterring FDI froma country. The study has been undertaken to analyse the impact of corruption on the foreign direct investment of developed countries and developing countries. The study used correlation, regression and granger causality test to analyse the relationship. The study found high positive correlation between FDI and CPI for developing countries. The study observed low negative and positive correlation between FDI and CPI for developed countries. Further the study found uni directional causality from corruption index to FDI of India. The respective government can take stringent policies and regulations to curb corruption in order to attract more and more FDI.