Open AccessCorruption Distance and US Foreign Direct Investment Outflows
Author(s) -
Mohammad Refakar
Publication year - 2021
Publication title -
international journal of economics and finance
Language(s) - English
Resource type - Journals
eISSN - 1916-9728
pISSN - 1916-971X
DOI - 10.5539/ijef.v13n7p98
Subject(s) - language change , foreign direct investment , index (typography) , developing country , poverty , economics , investment (military) , monetary economics , business , international economics , development economics , political science , economic growth , macroeconomics , politics , art , literature , world wide web , computer science , law
Corruption, defined as the misuse of public power for private gains, is a problem for many emerging and developing countries. Corruption increases the poverty and reduces growth and investment. This paper aims to analyze the relationship between corruption in the host country and the US foreign direct investment towards that country. I use two measures for corruption: The Corruption Perceptions Index and the corruption distance, which is the absolute difference of the corruption in the host and the US. Using a sample of 47 countries that receive the US foreign direct investment, I find that corruption is a strong determinant of US FDI outflows and the US investors are reluctant to invest in corrupt countries. Moreover, corruption distance has a negative effect on US FDI since as the distance in corruption increases, we observe less US FDI towards the host country.