Corruption, Foreign Direct Investment And Growth: A Hierarchical Bayesian Approach

Provided by: Binghamton University
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This paper investigates the role of corruption in explaining the effect of Foreign Direct Investment (FDI) on growth across non-OECD countries. The distinguishing feature of this model is that the host country's level of corruption is linked to its absorptive capacity (the ability to absorb and efficiently utilize any positive externalities associated with FDI) which in turn affects economic growth. The central testable hypothesis, therefore, is that the distortive effects of corruption affect a country's marginal return to FDI. Bayesian analysis was employed to estimate the marginal return to FDI for each country with and without controlling for corruption.

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