The Impact of Transparency on Foreign Direct Investment
Non-transparency is a term given in this paper to a set of government policies that increase the risk and uncertainty faced by economic actors foreign investors. This increase in risk and uncertainty stems from the presence of bribery and corruption, unstable economic policies, weak and poorly enforced property rights, and inefficient government institutions.
Economic Consulting Services, Inc.
Abstract Back to top
Non-transparency is a term given in this
paper to a set of government policies that increase the risk and uncertainty faced by
economic actors foreign investors. This increase in risk and uncertainty stems from the
presence of bribery and corruption, unstable economic policies, weak and poorly enforced
property rights, and inefficient government institutions. Our empirical analysis shows
that the degree of non-transparency is an important factor in a country's attractiveness
to foreign investors. High levels of non-transparency can greatly retard the amount of
foreign investment that a country might otherwise expect. The simulation exercise
presented in the statistical part of this paper reveals that on average a country could
expect 40 percent increase in FDI from a one point increase in their transparency ranking.
Pari passu, non-transparent policies translate into lower levels of FDI and hence lower
levels of welfare and efficiency in the host country's economy. A nation that takes steps
to increase the degree of transparency in its policies and institutions could expect
significant increases in the level of foreign investment into their country. This
increased investment translates into more resources, which in turn increases social
welfare and economic efficiency.
Key Words Back to top
Foreign direct investment, transparency,
corruption, FDI modeling.
JEL Classification No.
[F02] [F13] [F21]
Disclaimer Back to top
This is a working paper, and hence it represents research in progress. This paper represents the opinions of individual staff members or visiting scholars, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the authors. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Analysis Division, World Trade Organization, rue de Lausanne 154, CH-1211 GenÚve 21, Switzerland. Please request papers by number and title.