Shadow economy and FDI: the role of corruption and land resource

Rukaiyat Adebusola Yusuf, Loan Thi Quynh Nguyen

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

Purpose: This research examines how shadow economy affects foreign direct investment (FDI).

Design/methodology/approach: The study utilizes a panel dataset including 124 nations between 1997 and 2015. Information on shadow economy, FDI and macro-economic characteristics is obtained from the United Nations Conference on Trade and Development (UNCTAD) and World Bank database. Various econometric methods are employed, such as the panel ordinary least squares (OLS) with fixed-effect estimator and the two-step system generalized method of moments estimation. 

Findings: The findings of the study illustrate that shadow economy negatively influences total FDI inflows, and this adverse impact is mainly driven by greenfield investments – a component of FDI. Moreover, the authors provide evidence that the shadow economy has more devastating influences on FDI inflows in countries with higher corruption levels and fewer land resources. 

Practical implications: Overall, this research suggests an important policy implication that the shadow economy should be controlled more strictly since it harms the FDI inflows, especially greenfield investment. 

Originality/value: This research is among the first attempt of evaluating the effect of shadow economy on different FDI types. Furthermore, it examines how the shadow economy–FDI inflows nexus is changed when considering factors including corruption and land resource.

Original languageEnglish
Pages (from-to)171-182
Number of pages12
JournalJournal of Economics and Development
Volume25
Issue number2
Early online date10 Apr 2023
DOIs
Publication statusPublished - 15 May 2023

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