ISSN: 1019-7044
Volume 50, No. 1, June 2025
Published: November 2025
Pages: 287-331
Doi: http://doi.org/10.64204/BP1019-7044/50(1)/A20258
Syed Nazrul Islam
Employing three distinct datasets of bilateral FDI positions and flows (UNCTAD, CDIS, and OECD) in a structural gravity approach, this paper examines the impact of financial development and corruption on inward FDI. Applying both OLS and PPML estimation techniques, this paper (with UNCTAD data) finds that the financial development of both host and home countries is a significant determinant of FDI. However, the estimates with CDIS and OECD data show that FDI in the host country is positively associated with home country financial development and, to some extent, negatively associated with that of the host country, which is mainly driven by the developed country groups. Corruption is a persistent problem for FDI; however, the interaction with a good financial sector works as an incentive for inward FDI. Control of corruption has a greater impact on FDI stocks in the developed country than in the developing country.
JEL Classification: D25, F10, F21, G20, O50
Keywords: Financial Development , Corruption , Foreign Direct Investment , Gravity Model
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