DOES CORRUPTION SAND OR GREASE THE WHEELS OF FOREIGN DIRECT INVESTMENT IN PAKISTAN? A MULTILEVEL ANALYSIS
Keywords:
Foreign Direct Investment, Corruption, Sectoral FDI & ARDL, Bound Testing & Multilevel Analysis, PakistanAbstract
In the literature, two contrasting perspectives exist on the relationship between corruption and foreign direct investment (FDI) inflows. The “sand the wheels” perspective views corruption as deterring FDI, whereas the “grease the wheels” perspective emphasises that corruption facilitates FDI inflows. This study employs a multilevel analysis approach in Pakistan at three levels: country, sector, and firm. This approach is helpful for data-driven, evidence-based policy formulation, leading to more informed and rational public decision-making. At the country and sectoral levels (manufacturing and services), the Autoregressive Distributed Lag (ARDL) estimation technique is employed for the period 1984 to 2019. At the firm level, descriptive analysis uses World Bank Enterprise Survey 2022 data. ARDL findings indicate that corruption negatively affects FDI. The results align with the “sand the wheels” viewpoint. Moreover, survey data analyses exhibit that electricity shortages and corruption are significant barriers to business operations in Pakistan. The findings suggest that, despite having a liberal investment policy, corruption continues to discourage foreign investment in Pakistan. Therefore, the investment policy must align with Pakistan’s anti-corruption strategy.
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