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BWPEF 1604
Adiya Belgibayeva and Alexander Plekhanov
Does Corruption Matter for Sources of Foreign Direct Investment?

Abstract
The paper provides a cross-country empirical analysis of the impact of corruption on foreign direct investment flows. The gravity model augmented with joint effects of corruption in the origin and destination countries determines differentiated patterns of investment flows between countries with various level of control of corruption. The estimates point towards greater investment flows between countries with good control of corruption. Moreover, if control of corruption in the destination country improves, investment flows from cleaner countries rise more than they do from countries with a higher incidence of corruption. The resulting changes in composition of investment volumes towards more investment from cleaner countries may further reinforce the strengthening of economic and political institutions that keep corruption in check.

Keywords: corruption, economic institutions, foreign direct investment, gravity model

JEL Classification: F21, O43

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