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<p>This study investigates the impact of foreign direct investment inflows on the&#xa0;control of corruption index (CCI) by incorporating the&#xa0;role of governance, using a panel of SAARC countries over the period 1996–2022. The study includes three dimensions of the&#xa0;quality of governance: economic, institutional and political governance and constructs a&#xa0;governance quality index through principal component analysis. Additionally, the study employs&#xa0;the generalized method of moments estimation technique with panel corrected standard errors to address the issues of unobserved heterogeneity among different countries, cross-sectional dependence in the data, and endogeneity among the variables. The study finds from non-interactive regressions that FDI negatively influences CCI while the&#xa0;quality of governance positively influences CCI. However, interactive regressions suggest that the interaction between FDI inflows and good governance supports the&#xa0;control of corruption. Based on these findings, it is concluded that good governance is a necessary condition through which FDI controls corruption. Since good governance complements FDI and supports the&#xa0;control of corruption, it is submitted that SAARC countries should pay attention to the improvement of their quality of governance in order to enhance the control of corruption.</p>

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Foreign direct investment (FDI) and control of corruption: does good governance matter?

  • 期刊论文

  • 发表日期：

    2025年7月18日

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  • Farzana Naheed Khan

摘要

This study investigates the impact of foreign direct investment inflows on the control of corruption index (CCI) by incorporating the role of governance, using a panel of SAARC countries over the period 1996–2022. The study includes three dimensions of the quality of governance: economic, institutional and political governance and constructs a governance quality index through principal component analysis. Additionally, the study employs the generalized method of moments estimation technique with panel corrected standard errors to address the issues of unobserved heterogeneity among different countries, cross-sectional dependence in the data, and endogeneity among the variables. The study finds from non-interactive regressions that FDI negatively influences CCI while the quality of governance positively influences CCI. However, interactive regressions suggest that the interaction between FDI inflows and good governance supports the control of corruption. Based on these findings, it is concluded that good governance is a necessary condition through which FDI controls corruption. Since good governance complements FDI and supports the control of corruption, it is submitted that SAARC countries should pay attention to the improvement of their quality of governance in order to enhance the control of corruption.