The effect of corruption on FDI and its modes of entry

Purpose– Thepurposeof this paper is to empirically investigate the impact of corruption on foreign direct investment (FDI) and its two major modes of entry: greenfield investment (greenfield) and cross-border mergers andacquisitions (M&As). Design/methodology/approach– Data are collected from 131 countries. Modern econometric techniques, including the generalized method of moments (GMM) estimator, two-stage least square estimator andtwo-step system GMMestimator,areusedtoevaluatetheimpact ofcorruptionon FDI activities. Findings– Theempiricalresults illustrate that corruption is a deterioration factor that significantly hinders FDI inflows. However, this finding turns out to be contradictory when the two major components of FDIgreenfield investment and cross-border M&As– are separately examined. Specifically, while corruption consistently discourages cross-border M&As over time, it appears to exert positive effect on greenfield investments. Originality/value– Thisisamongthefirsttoempirically examine the impact of corruption on FDI andits modes of entry in a number of countries spanning different time windows. In this sense, this paper also captures the changing nature of societies and economic conditions overtime and, therefore, enable academic researchers, policy-makers and business practitioners to draw broad inferences from the empirical results.<p></p>