The effect of corruption, trade openness and political stability on foreign direct investment: Empirical evidence from BRIC countries

The decision of why a corporation would start or takeover a company in a foreign country rather than entering the foreign market through international trade has been a growing research topic for the last thirty years. This research aims to investigate the impact of corruption, trade openness, and political stability on foreign direct investments (FDI) in Brazil, Russia, India and China collectively. The study carried on the BRIC countries covered the period of2002- 2016, with total observations of 60countriesyears. The dependent variable for this research is Foreign Direct Investments (FDIs) and the independent variables are Corruption, Trade Openness and Political Stability. The research has used Panel Fully Modified Ordinary Least Squares (FM-OLS) cointegrating regression model to analyse the relationships. The findings show that the independent variable (Corruption) places no significant effect on the Dependent Variable (FDIs) in the BRIC countries. While the other two Independent Variables (Trade Openness and Political Stability) place a significant effect on the Foreign Direct Investments in BRIC countries. Moreover, it was found out that the direction of the relationship for both independent variables was positive. In addition, specific Panel Unit Root tests and Cointegration test were applied to meet confirm the reliability of the FM-OLS for panel data collected. Thus, this research will help the policy makers and research community with the knowledge of new dimensions regarding the topic. (C) 2017 The Authors. Published by IASE.