The Complex Nexus: Analyzing the Interplay of Economic Growth, Corruption, Foreign Direct Investment, and Institutions

Abstract

A significant component of economic growth is the enlightenment of the economy. Corruption slows down economic growth. Human civilization is influenced by corruption, a relic of an ancient occurrence in all countries worldwide. Economic growth is negatively affected by corruption. In the presence of poor institutions, corruption slows the flow of FDI. In this analysis, FDI and institutions are studied using panel data. Drisc and Kraay and. fixed effects techniques are used to determine nexus. The analysis is carried out for 53 developing countries from 2005 to 2022. The results indicate that corruption hinders economic growth, whereas the inflow of FDI boosts economic growth. Results show that economic growth decreases due to weak political and economic institutions in developing countries. This suggests that countries should invest in developing strong economic and political institutions to benefit from FDI. Also, countries should focus on reducing corruption to encourage economic growth. Governments should also create incentives to attract FDI, such as lower taxes, improved infrastructure, and relaxed labor regulations. Finally, countries should put in place measures to protect FDI from political interference and instability.