Does corruption play a role in the process of financial globalization in emerging countries?

Abstract

Purpose This paper aims to examine various indicators related to corruption and determine their impact on financial globalization in emerging countries. It will consider other factors that may impact financial globalization and focus on how corruption within political, executive and public sector institutions can affect this process. Design/methodology/approach This paper uses a generalized method of moments (GMM) for a data sample of emerging countries covering 2000–2020. Corruption measurements are derived from the varieties of democracy data sets and Transparency International. It also includes data on foreign direct investment, portfolio flows, foreign exchange and international debt as separate indicators of financial globalization. These measures provide more detailed information on the types of financial transactions occurring across countries. Findings The results reveal that foreign investors may be less likely to enter certain sectors of the economy due to concerns about unethical practices and difficulties navigating the regulatory landscape in countries with high levels of corruption. This can lead to underdevelopment in sectors that are attractive to foreign investment and a reliance on a narrow range of sectors. Originality/value This paper offers valuable insights by integrating corruption and financial globalization indicators, using the GMM for robust analysis. It highlights how corruption influences foreign investment decisions, potentially leading to sectoral underdevelopment and overreliance in emerging countries.