Abstract

Using both a Random Effects (RE) model and a Method of Moments Quantile Regression (MM-QR) with random effects, this study examines the relationship between foreign direct investment (FDI), corruption, and market size. The study makes use of panel data from 16 different nations. The primary goal is to investigate how corruption and market size influence FDI, with a particular emphasis on corruption's heterogeneity and distribution effects on investment flows. The RE model's findings show a positive correlation between FDI and lagged FDI, trade openness, and per capita GDP growth, but a significant negative correlation between corruption and inflation. However, corruption losses significance when interacted with GDP per Capita. This implies that expansion in market size may mitigate the adverse effects of corruption on FDI. The MM-QR model shows that for countries attracting higher volumes of FDI, the impact of corruption on FDI decreases. The interaction term, when added to the MM-QR model, is found to be statistically significant at the 75th and 95th percentiles. Based on the found positive coefficients, it shows that an increase in market size at a certain level of corruption attracts more FDI. Comparing the 75th and 95th percentiles, a more substantial effect exists at the 95th percentile. This implies that the result is even more substantial in the larger economies. From a policy standpoint, the findings underscore the imperative for SADC nations to amend and adopt inclusive anti-corruption policies. These policies include SADC Protocol Against Corruption, and other country specific policies like Malawi National Anti-Corruption Strategy.

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School	: School of Law, Economics and Government
Issued Date	: 2024

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