The Impact of Corruption and Transparency on Foreign Direct Investment: An Empirical Analysis1

■ Both corruption and transparency are often perceived to damage the investment environment of a country. However, little research has been undertaken to empirically examine their impacts on foreign direct investments. ■ This paper examines the influences of corruption and transparency on the level of foreign direct investment (FDI). Based on a cross-section data of 40 countries in 7 years, statistical results show that the presence of high corruption and low transparency significantly hindered the inflow of FDI to host countries. ■ This study (1) contributes explicitly to our knowledge about how corruption and transparency undermine the FDI and (2) presents the practical implications and challenges facing international managers contemplating entering into foreign markets.