The impact of various combinations of corruption on attracting capital in developing countries Parallel with Iran

Document Type : Research Article

Authors

Associate Professor, Department of Economics, Faculty of Economics and Business Administration

Abstract

Goal: Although capital as the most important factor in the economic growth of developing countries is of great importance for these countries, and due to the constraints on its attraction in domestic level, much attention is also given to foreign investment. But there are several factors that reduces benefits from investment, especially foreign investment. Among the most important of these factors, the rate of corruption in the country is the capital destination. Many studies have shown that corruption (with an emphasis on Corruption Perception Index) has a negative impact on investment in countries.
Methodology: Therefore, due to the importance of this issue, especially in developing countries, this study examines the factors affecting investment (foreign direct investment and private investment in the private sector) with an emphasis on the Corruption Perception Index, Control of Corruption, and other modifying variables of corruption that govern governments and Hence, capital attraction is more effective. For this purpose, this study apply panel data and vector self-regression models among 30 developing countries between 2005 and 2015 and estimates combined cross-sectional and time series data. In this study to obtain information on the impact of corruption on the rate of capital appreciation in developing countries, based on theoretical foundations and past studies (including and private direct investment (FDI) and private investment (DP)), the variables of Corruption Perception Index (CPI), Control of Corruption (COC), Political Stability (PS), Inflation Rate (IN), GDP per capita (GDPPC) and economic freedom (EF) have been used.
Results: The results indicate that corruption perception have no effect on foreign investment, but corruption control has a positive effect and significant effect on it. Also, both indicators of corruption perception and control of corruption have a positive effect and significant effect on private sector investment. The variables of economic freedom and political stability have also had a positive effect and significant effect on investment as other modifying variables. According to the results, the scale of the market has a positive and significant relation with the investment of the private sector.
Conclusion: According to the results of this study, corruption perception did not have a significant effect on foreign direct investment. This can turn back to the point that if the return on capital covers the uncertainties of corruption, foreign investors should not worry about their investments in countries that do not have a stable political or economic system or high inflation. In other words, what matters to an investor is the positive and high rate of return on capital that is determined by the difference in the nominal return on capital and the rates of losses caused by corruption and inflation, but corruption control has a significant effect on this variable because it is often Foreign investors prefer to invest in a country whose profits are guaranteed and do not threaten their investment risk. As a result, it must be combated with economic corruption and it high-risk. If is not taken serious the fight against corruption, economic diseases is growing increasingly. While unrealistic struggle can threaten investors and lead to the destruction of the security system of investment.

Keywords

References

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Journal of Applied Economics Studies in Iran
Volume 7, Issue 25
May 2018
Pages 155-175

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