The impact of financial development and corruption on foreign direct investment in developing countries

  • Received May 10, 2022;
    Accepted June 5, 2022;
    Published June 7, 2022
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.19(2).2022.18
  • Article Info
    Volume 19 2022, Issue #2, pp. 211-220
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This work is licensed under a Creative Commons Attribution 4.0 International License

Foreign direct investment (FDI) inflows into developing countries play an important role in the dynamics of economic growth. Meanwhile, financial development (FDV) and corruption have been considered a determinant of FDI. Therefore, this study aims to assess the effect of FDV and corruption on FDI in developing countries. In addition, this study explores the combined impact of FDV and corruption on FDI. Furthermore, the data for 108 developing countries were collected from the World Development Indicators (WDI) of the World Bank from 1993 to 2017. The results showed that FDV has a positive and significant effect on FDI, while corruption does not have a statistically significant impact. This demonstrates that FDV has contributed to the growth of foreign investment and the important sources of financing for developing countries. However, the interaction between FDV and corruption has a negative effect on FDI. This implies that FDV followed by an increase in corruption tends to reduce FDI inflows. These results encourage policymakers to address issues regarding the joint impact of FDV and corruption on FDI in developing countries.

Acknowledgment
The authors would like to express their gratitude to three anonymous reviewers and seminar participants at Mulawarman University for their insightful comments.

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    • Table 1. Descriptive statistics
    • Table 2. Correlation matrix
    • Table 3. Financial development, corruption, and foreign direct investment
    • Table 4. The interaction effect between financial development and corruption on foreign direct investment
    • Conceptualization
      Diana Lestari
    • Formal Analysis
      Diana Lestari
    • Funding acquisition
      Diana Lestari
    • Investigation
      Diana Lestari, Dadang Lesmana, Rizky Yudaruddin
    • Methodology
      Diana Lestari, Rizky Yudaruddin
    • Project administration
      Diana Lestari, Dadang Lesmana
    • Supervision
      Diana Lestari, Rizky Yudaruddin
    • Validation
      Diana Lestari
    • Writing – original draft
      Diana Lestari, Yanzil Azizil Yudaruddin
    • Writing – review & editing
      Diana Lestari
    • Data curation
      Dadang Lesmana, Yanzil Azizil Yudaruddin, Rizky Yudaruddin
    • Resources
      Dadang Lesmana, Yanzil Azizil Yudaruddin
    • Visualization
      Dadang Lesmana, Yanzil Azizil Yudaruddin
    • Software
      Yanzil Azizil Yudaruddin, Rizky Yudaruddin