Do the sector-orientation and the origin of foreign direct investment explain types of corruption in Sub-Saharan Africa?

Abstract

This paper focuses on analysing the effects of sector orientation and the origin of FDI on the types of corruption. The GMM technique and the IV-2SLS on a panel of Sub-Saharan African countries were used. Globally, we find that FDI increases political corruption in SSA. Moreover, the study shows that sector orientation and the origin of FDI have significant effects on each type of corruption. Primary sector FDI enhances public sector corruption and reduces judicial corruption. Secondary sector FDI increases executive, public, and judicial corruption. In the tertiary sector, executive and public corruption are enhanced while judiciary corruption is reduced. Regarding the origin, FDI from France increases public sector corruption whereas FDI from China and the USA reduces it. Executive corruption is reduced by FDI, regardless of its origin. FDI from France and the USA discourages judiciary corruption while FDI from China increases it. FDI from China reduces legislative corruption, while FDI from the USA tends to increase it. Furthermore, the analysis of the transmission channels shows education and development levels as important channels through which FDI could reduce corruption in SSA. Relevant policy implications derived from this study include the necessity for policy-makers to combat all types of corruption and mostly public corruption.