The impact of corruption on Foreign Direct Investment inflow in Ghana

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In Ghana, the attraction of FDI is identified among the strategies for achieving the Ghana beyond aid agenda. Meanwhile, corruption, which is a major factor affecting FDI inflow, is very high in Ghana, making it necessary to investigate its impact on Ghana’s FDI inflow. The findings on the impact of corruption on FDI have been inconclusive. Two main theories underlie the corruption-FDI relationship, namely, the grabbing hand and the helping hand. The grabbing hand posits that corruption negatively impacts FDI by raising transaction costs. The proponents of the helping hand argue that corruption serves as grease in the wheels of commerce in the absence of strong institutions, hence making a country more attractive for FDI. The autoregressive distributed lag estimator is used to estimate the relationship between corruption and FDI inflow and to determines the effect of the 2008 financial crisis on the corruption-FDI relationship in Ghana. The study checks whether the regression results depend on the corruption index used by estimating the two different regressions, each with different corruption index. The results show that FDI inflow has a significant positive relationship with corruptiont but its lag is insignificant. When tested jointly, corruption and its lag have insignificant relationship with FDI. The 2008 financial crisis had insignificant negative effect on the corruption-FDI relationship. Moreover, estimating with the control of corruption shows different results from estimating with corruption perceptions index. This suggests that the differences in results on the topic may be due to the choice of corruption index.
Undergraduate thesis submitted to the Department of Business Administration, Ashesi University, in partial fulfillment of Bachelor of Science degree in Business Administration, May 2021
economic growth, 2008 financial crisis, governance indicators