Corruption, political instability and their impact on investment: An FMOLS approach

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Due to the lack of studies in the financial literature on indicators of corruption and political instability relative to investment, this paper is considered one of the first studies that examines the impact of two-corruption indicators and political instability on investment in Jordan over the period 1987–2020. Using Fully Modified Ordinary Least Squares (FMOLS) based on annual data, the corruption effect as measured by the corruption score index is a negative and statistically significant impact on investment in Jordan. The second measure of corruption, which is the corruption rank index, confirmed the previous result that corruption has a negative and statistically significant effect. Political instability measured in this study as a dummy variable by wars in the region has a positive and statistically significant effect on investment. For macroeconomic variables, the results show that current government expenditure and interest rate have a negative and significant impact on investment in Jordan. The interest rate factor was the highest coefficient among the negative effects. The study also shows that the investment in Jordan is positively and significantly affected by growth domestic product, imports and local revenue. The gross domestic product showed the highest coefficient among the positive effects. This study concludes that policy makers attempt to apply transparency and minimize the corruption through flexibility, facilitation of procedures and reduced transactions using automation. The study also concludes that decision makers should rationalize current government expenditure and direct banks in Jordan to give greater priority to credit facilities for productive sectors.

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    • Figure 1. Investment indicator
    • Table 1. Descriptive statistics
    • Table 2. The results of augmented Dickey-Fuller and Phillips-Perron tests
    • Table 3. The results of Johansen’s co-integration tests
    • Table 4. The effect of various independent variables on Jordanian investment
    • Table 5. Robustness analysis: corruption rank effect on Jordanian investment
    • Conceptualization
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Data curation
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Formal Analysis
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Funding acquisition
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Investigation
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Methodology
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Project administration
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Resources
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Software
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Supervision
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Validation
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Visualization
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Writing – original draft
      Omar K. Gharaibeh, Buthiena Kharabsheh
    • Writing – review & editing
      Omar K. Gharaibeh, Buthiena Kharabsheh