Corruption, FDI and economic growth

Various papers in the past have analysed the relationship between corruption, level of foreign direct investment and economic growth. While previous papers unanimously agree on the negative impact of corruption on economic growth, findings regarding impact of corruption on economic growth are contradicting. In this paper, I analyze the impact of corruption, measured by corruption index of International Country Risk Guide, on the level of foreign direct investment flow and economic growth. According to Cobb-Douglas model, the economic growth depends on the presence of capital. Since the FDI is regarded as a source of capital, negative impact of corruption also negatively impacts economic growth due to less exposure to capital. Results of this paper, confirm the idea that presence of corruption deters the foreign direct investment and limits the economic growth.