Determinants of FDI inflow in BRICS countries: Role of globalization and corruption control

Abstract

This study investigates the determinants of FDI inflows in BRICS countries – the fastest-growing and the most resource-full group of developing countries in the world. Data from the five BRICS countries were analysed using the fixed effect, ARDL, and Dumitrescu and Hurlin Granger causality tests. Alongside multiple models, robustness was checked using additional proxies for corruption, stability, and openness. ARDL offered the benefits of testing both short- and long-run interactions. Globalization, corruption control, market size, and economic growth exhibit strong positive influence on FDI inflow. Financial development (credit to GDP ratio) negatively influences FDI inflow. Corruption exhibits a ‘U-shaped’ relationship with FDI inflows. When combined using a moderation effect, globalization and corruption control exerts a better strategic impact on FDI inflow than their stand-alone impact. MNEs will prefer a country as their next destination that carries a ‘regionally integrated’ open economic policy, bigger local market size, and clear policies to mitigate risk attached to corruption and excessive domestic credit. Grounded on the globalization-growth literature, our findings on the globalization and FDI inflow nexus is noble find for the developing countries. Contrary to extant ambiguous findings, we offer clear evidence that FDIs can influence financial market development policies in developing economies.

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