Abstract
This study attempts to empirically investigate the direct impact of corruption and political instability and the interactive effects of corruption and political instability along with other factors on FDI inflows to the Middle East countries using panel dynamic ordinary least square procedure. Findings of this study show that the effect of corruption on FDI inflows is mixed and depends on the level of political instability of the country. It confirms that corruption has a negative effect on FDI inflow in countries with high political instability but a positive impact in countries with relatively low levels of political instability. This implies that corruption is unfavourable for FDI inflows in countries with high levels of political instability and therefore drives out FDI inflows. The results imply some policy recommendations for policy makers in the Middle East countries especially those with high corruption and political instability levels to take a range of anti-corruption measures to get rid of corruption and enhance political stability.
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