Does Corruption Hinder Foreign Direct Investment and Growth in Asia and Beyond? The Grabbing Versus the Helping Hand Revisited

Abstract

AbstractCorruption is considered a major issue globally, particularly for developing countries, as it takes away important resources resulting in huge costs to the economy. This is especially true in the case of attracting foreign direct investment (FDI) in the host country. However, the theoretical literature contains counter-arguments, with some scholars agreeing with the above argument while others suggest that, in some cases, corrupt practices facilitate business transactions, thus helping to attract FDI. This chapter further explores this literature. It first provides a review of the theoretical and empirical literature on corruption–growth and corruption–investment relationships. This is followed by some interesting details on the cost of corruption. Subsequently, some econometric analysis is performed to verify the ‘grabbing hand’ and ‘helping hand’ views on the impact of corruption. The empirical findings of this chapter support a grabbing hand view for the top 20 (least corrupt) countries while the evidence suggests a helping hand view for the bottom 20 (most corrupt) countries. The author also finds evidence supporting a non-linearcorruption–growth and corruption–investment relationship for the sample of the 20 most corrupt countries. He believes that these are interesting findings and could have important policy implications.