The Effects of Corruption on FDI Inflows

28 Pages Posted: 15 May 2013

See all articles by Ali Sadig

Ali Sadig

Saudi Arabian Monetary Agency

Date Written: June 14, 2009


This article intends to answer the following question: Does a corrupt host country receive less or more FDI inflows after controlling for other determinants of FDI location?

Our results show that the corruption level in the host country has an adverse effect on FDI inflows: a one-point increase in the corruption level leads to a reduction in per capita FDI inflows by about 11 percent. However, after controlling for other characteristics of the host country such as the quality of institutions, the negative effects of corruption disappear and sometimes it becomes positive but statistically insignificant.

Keywords: foreign direct investment flows, how does corruption impact foreign investment, multinational corporations

JEL Classification: E22, F21, O16, D73

Suggested Citation

Sadig, Ali, The Effects of Corruption on FDI Inflows (June 14, 2009). Cato Journal, Vol. 29, No. 2, 2009, Available at SSRN:

Ali Sadig (Contact Author)

Saudi Arabian Monetary Agency ( email )

Saudi Arabia

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