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The corruption-foreign direct investment nexus in sub-Saharan Africa. Fresh evidence from a panel threshold regression approach

John Kwaku Amoh (Department of Accounting, University of Professional Studies, Accra, Ghana)
Abdallah Abdul-Mumuni (Department of Banking and Finance, University of Professional Studies, Accra, Ghana)
Randolph Nsor-Ambala (Department of Accounting and Finance, Ghana Institute of Management and Public Administration, Accra, Ghana)
Elvis Aaron Amenyitor (Department of Accounting and Finance, Ghana Institute of Management and Public Administration, Accra, Ghana)

Journal of Financial Crime

ISSN: 1359-0790

Article publication date: 7 July 2023

Issue publication date: 29 April 2024

76

Abstract

Purpose

Most emerging economies have made conscious efforts through policy initiatives to attract foreign direct investment (FDI). However, a significant obstacle to FDI inflow has been the prevalence of corruption in the host country. This study, therefore, aims to examine whether there is an optimum corruption value that results in threshold effects of corruption on FDI.

Design/methodology/approach

To achieve this objective, this study used Hansen’s (1999) panel threshold regression (PTR) model by using a panel data of 30 sub-Saharan African (SSA) countries from 2000 to 2021.

Findings

This study finds that the nexus between corruption and FDI has a single threshold effect, with a 5.37% optimum corruption threshold value. At this threshold value, corruption affects FDI negatively. Any corruption value that is below the threshold value also elicits a negative corruption–FDI relationship. Despite having a negative relationship when the corruption value is above the optimum corruption threshold, it is not statistically significant.

Research limitations/implications

The implication of the results is that it is deleterious to use corrupt practices to draw FDI to SSA nations.

Originality/value

To the best of the authors’ knowledge, this study is one of the first in the corruption–FDI nexus literature to use Hansen’s PTR model to estimate an optimal corruption threshold. The authors recommend that policymakers in the selected SSA countries reconsider the use of corruption to attract FDI because there is an optimal corruption threshold that could impact FDI in the host country.

Keywords

Citation

Amoh, J.K., Abdul-Mumuni, A., Nsor-Ambala, R. and Amenyitor, E.A. (2024), "The corruption-foreign direct investment nexus in sub-Saharan Africa. Fresh evidence from a panel threshold regression approach", Journal of Financial Crime, Vol. 31 No. 3, pp. 681-697. https://doi.org/10.1108/JFC-05-2023-0119

Publisher

:

Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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