IMPACT OF CORRUPTION ON FOREIGN DIRECT INVESTMENT: AN EMPIRICAL ANALYSIS OF SAARC COUNTRIES

Abstract

The current state of corruption has posed serious challenges to the stability of the macroeconomic environment causing the displacement of foreign direct investment (FDI). In this article the researchers have studied the impact of corruption on foreign direct investment in SAARC countries. Where corruption is something, “the use of public finance for private purposes” and its impact on foreign direct investment, which is “the direct acquisition of ownership in the host country”. Due to the present mysterious status of this issue (corruption) this article studied the impact of corruption on FDI and to know the unusual effect which it has on the economy of the host country. This study has been conducted over SAARC countries, which is labeled as “emerging” countries and they are most affected countries to face such problem. SAARC countries are under study, which is consisted eight countries, namely, Afghanistan, Pakistan, India, Bangladesh, Bhutan, Nepal and Sari Lanka and Maldives. Afghanistan has been excluded from this study because of insufficiency of the required data. So, sample of the study is concerned up to seven SAARC countries and a time period of sixteen year, which is from 2001-2016.The corruption index, corruption perception index (CPI) is used as a proxy for corruption. CPI indexes are published by transparency international by using different sorts of parameter for its calculation on perception bases. For the obtaining of a validating result, we have also included some of the control variables which are economic development of the host country, trade openness, infrastructures and Market size. A panel data technique is used for the estimation which elaborated the common effect model. The key findings are that corruption has a significant relationship with foreign direct investment. As this result is just on SAARC countries those have some similarities in their issues; this research may also apply on some other international organization like ASEAN etc. For an individual country analysis the sort of research may apply for the identification of the results of the corruption’s impact on FDI inflows. The government should focus on the corruption issues as it has a significant relationship with country economy