Analysis of the Relationship Between Foreign Direct Investment and Corruption in BSEC Countries Using the Granger Causality Test by Xiao et al. (2023)
DOI:
https://doi.org/10.37241/jatss.2026.153Keywords:
foreign direct investment, control of corruption, Granger causality, Black Sea Economic CooperationAbstract
Introduction: This study examines the relationship between foreign direct investment (FDI) and the control of corruption in Black Sea Economic Cooperation (BSEC) member countries during the 2002-2023 period.
Method: The empirical analysis uses the control of corruption index as the dependent variable and foreign direct investment as the primary explanatory variable. Economic growth and trade openness serve as control variables. To address cross-sectional dependence and cross-country heterogeneity, the panel Granger non-causality framework of Xiao et al. (2023) is applied. In addition, robustness analysis was performed using the Westerlund (2007) panel cointegration test.
Results or Findings: The baseline level specification suggests bidirectional predictive relationships between FDI and control of corruption, indicating that each variable can predict changes in the other. The findings also indicate a strong association between economic growth and control of corruption, whereas the effect of trade openness on control of corruption is not statistically significant. Multivariate cointegration results provide only limited evidence of a long-run equilibrium among the variables studied.
Discussion or Conclusion: The study contributes to the literature by examining the FDI-corruption nexus for BSEC countries using a panel causality method that allows for dependence and heterogeneity across countries. The findings suggest that improvements in control of corruption are more robustly associated with changes in FDI than the reverse channel, implying that institutional reform remains an important component of investment and development strategy in the region.
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