The Role of Corruption Control in Determining Foreign Direct Investment in Brics Countries

Abstract

This study examines the effect of the corruption and the exchange rate on the foreign direct investment (FDI) inflows to the Brazil, Russia, India, China and South Africa(BRICS)during the Period of 1995 to 2018. We estimated three panel auto-regressive distributive lags (ARDL) models, i.e. pool mean group (PMG), mean group (MG) and Dynamic fixed effect (DFE). The test based on the Hausman’s statistic revealed that PMG results ispreferable. From the PMG results it is found that corruption control index (COR) has positive and significant coefficient in both the short and the long run, the log of real effective exchange rate (lREER) which indicates the relative strength of the currency found to be a negatively related with FDI inflows in the long run and the effect is positive in the short run. Weconclude that both depreciation of exchange rate and control of corruption are significantly attracting FDI inflows to the BRICS. Finally, it is recommend that authorities should put more efforts in ensuring the credibility of the fight against corruption. The effort should also be made to keep the exchange at the stable and moderate rate that will be attractive to foreign investors.