Does corruption attract foreign direct investment inflows? Evidence from Tanzania

Abstract

Corruption remains a prominent institutional barrier that hampers foreign direct investment (FDI) inflow in developing countries. However, the specific impact of corruption on FDI inflows in Tanzania remains largely unexplored. This research aims to contribute to the existing body of knowledge by examining the consequences of corruption on FDI inflows in Tanzania between 1996 and 2021. The analysis utilizes time series institutional data obtained from the World Bank governance indicators and FDI inflow data from the Bank of Tanzania (BOT). Given the consideration of multiple variables, a multiple regression model is employed to analyze the data. Unit root tests such as the expanded Dickey-Fuller and Johansen cointegration tests are utilised to assess whether the variables are cointegrated and whether the data exhibits stationarity or nonstationarity. The findings of this study unequivocally demonstrate that corruption (CC) has a significant adverse effect on both short-term and long-term FDI inflows. The data from 1996 to 2021 consistently indicate a noteworthy influence of corruption (CC) on FDI inflows. Consequently, this research recommends concerted efforts to combat corruption in order to improve the investment climate and attract foreign investors.