Institutional Quality and Corruption: Comparative Study of FDI Variation in Resource-Rich Developing Economies

• In Event: Policymaking Across Nations

Abstract

Foreign direct investment (FDI) remains a critical driver of economic development in resource-rich developing countries, yet its distribution varies significantly across regions with similar resource endowments. A central policy challenge is explaining why some countries attract sustained investment despite corruption, while others experience persistent capital flight. Existing research identifies corruption as a barrier to FDI, but provides limited cross-regional evidence on how institutional quality conditions this relationship, particularly in resource-dependent economies. This study examines how institutional quality moderates the relationship between corruption and FDI inflows, comparing top resource-rich developing countries in Sub-Saharan Africa (SSA) and Latin America and the Caribbean (LAC). It addresses three questions: (1) how corruption affects FDI inflows across regions, (2) whether institutional quality mitigates or amplifies these effects, and (3) how natural resource dependence interacts with governance structures to shape investment outcomes. The study employs a comparative mixed-methods design. The quantitative component uses panel data from 2012–2021 for the top resource-rich countries in SSA and LAC, drawing on the World Bank's World Development Indicators, the Worldwide Governance Indicators (WGI), and Transparency International's Corruption Perceptions Index (CPI). Fixed-effects and interaction models are used to estimate the moderating role of institutional quality and natural resource rents. The qualitative component consists of semi-structured interviews with policy experts from international organizations (e.g., World Bank, OECD, UNCTAD) to contextualize empirical findings and address limitations of perception-based corruption measures. Preliminary results indicate that corruption is consistently associated with lower FDI inflows, but the magnitude of this effect varies significantly by institutional context. In LAC, higher institutional quality attenuates the negative effect of corruption, suggesting that regulatory credibility and rule of law provide compensatory signals to investors. In contrast, in SSA, weak institutional frameworks amplify the adverse effects of corruption, reinforcing investment risk and volatility. Interaction effects further show that natural resource dependence exacerbates the corruption–FDI relationship in low-institutional-quality environments, consistent with resource curse dynamics. These findings show that anti-corruption policies alone are insufficient to attract FDI without broader institutional reform. Effective policy responses require strengthening regulatory quality, the rule of law, and governance capacity to reduce uncertainty and transaction costs for investors. More broadly, the study contributes to policy debates on state capacity, institutional reform, and investment governance, offering comparative insights for designing context-specific strategies to attract sustainable FDI in resource-rich developing economies.

Author

• Isaac Kwabena Yeboah, Virginia Commonwealth University
  Presenting Author