Does The Effects of Corruption on Foreign Direct Investments in Developed and Developing Countries

Abstract

This study investigates the impact of corruption on foreign direct investment (FDI) in both developed and developing countries by analyzing how perceived levels of corruption influence investment inflows as a percentage of GDP. Using panel data from 2016 to 2023 across selected countries, the research employs multiple linear regression models to examine the relationship between the Corruption Perception Index (CPI Score) and FDI_GDP. The findings reveal significant differences between country groups: in developing countries, lower CPI scores (indicating higher corruption) are often associated with higher FDI inflows, suggesting that foreign investors may tolerate or even adapt to corrupt environments in pursuit of market opportunities. In contrast, developed countries exhibit relatively stable FDI flows and higher CPI scores, reflecting stronger governance and transparency. The study also reviews prior research, including the Tolerable Level of Corruption Index (TLCI) by Abotsi (2018) and panel model analysis by Bellos and Subasat (2012), to contextualize the varying effects of corruption on investment behavior. The results underscore the importance of institutional quality, political stability, and tailored policy strategies in attracting sustainable foreign investment