Does corruption have impact on FDI & poverty?
evidence from selected Sub-Saharan African countries
The study on the effects of corruption has attracted attention of many scholars in the world today. This study focus on corruption and its impacts on FDI inflow and poverty. It is argued that corruption does not only reduce FDI inflows in a country, but also cause poverty in the host country by negatively affecting and weakening social, economic and political institutions at different levels. Using data from World Bank group, 2016, the result of the cross-sectional setting showed that corruption negatively affect FDI inflow and it is significant. Since this study seek to find out the effect of corruption on inward FDI and its effect on poverty levels, the investigation was started by using a cross-sectional data analysis on 34 countries for 11 years to confirm the former findings of authors. Later panel data analysis was used since the sample size in panel data is quite larger than the use of time-series.
Therefore, a benchmark FDI theoretical model and equation in the methodology constructed to test corruption and its effects on attraction of FDI. While, the link between corruption and poverty was confirmed and validated by the previous studies. In order to distinguish between two treatment groups, a dummy variable was added and the result showed negative and significant effect on FDI
inflow that means other factors apart from practice of Corruption in any country can affect and discourage FDI inflow. This study also consider that not only corruption influences the level of country’s FDI inflow but other determinants like political instability in the host nation.
The fact is that corruption is deeply rooted in the African society, it has captured public debate in regard to its effects on the social, economic and political instruments. The result in this study will help the policy-makers to tackle corruption from all the angles of its negative influences on inward FDI and poverty levels of countries under this study.
Therefore, we conclude that corruption is significantly an obstacle to FDI inflow in Sub-Saharan African countries because corruption obstruct FDI inflow by increasing economic risks and uncertainties, thereby destroying investors’ confidence in investing in the existing market. Ideally, all the stakeholders should carry the blame for feeding corruption in their society because they are all participants in the corruption scandal. Corruption must not only be controlled for political reasons but also for economic growth and prosperity for those host countries.
I task the governments to consider good regulatory measures to deal with corruption and establish all the required ways to make sure that right steps are taken to establish a trusted and consistent rule of law in order to attract more FDI which will provide quick and direct finance to elevate poverty and improve the overall economic growth.
I believe that this study alone cannot cover all the policy issues related to corruption. This study empirically proved significant relations between corruption and inward FDI and discovered that corruption affect poverty indirectly. So stating conclusion that corruption have effects on poverty level without empirical evidence is bias and unfair. It would be an asset for future researchers to empirically test the relations in question to fill this gap.
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