TABLE OF CONTENTS

ABSTRACT……………………………………………………..…………………………..…….ii
ACKNOWLEDGEMENTS ………………………………………………………………………iii
LIST OF TABLES……………………………………………………………………………..…vii
LIST OF FIGURES ……………………………………………………………………………..viii
Chapter 1. Introduction…..…………………………………………………………………….1
1.1. Background………………..……………………………………………………….……1
1.2. Organization of the study…………………………..……………………………………6
Chapter 2. Literature Review……………………………………………………………….……11
2.1. FDI theories…………………………………………………………………………….12
2.1.1. The monopolistic advantages theory………………………………………….…12
2.1.2. Transaction cost and internalization theory…..………………………………….16
2.1.3. Ownership, location, and internalization (OLI) advantages theory….……………18
2.1.4. Product life cycle (PLC) theory…..………………………………………………20
2.1.5. Horizontal FDI, vertical FDI and knowledge-capital theory………..….…………23
2.2. Types of FDI: horizontal, vertical and export-platform…….….……………………….26
2.3. Theoretical framework of corruption………….………………………….…………….30
2.4. Empirical findings………..…..…………………………………………………………43
2.4.1. The effect of corruption on FDI……………………………..……………………43
2.4.2. The determinants of corruption………….…….………………………………….47
Chapter 3. Data and Methodology……….……………………………………………………53
3.1. How to measure FDI inflows………..……………………………….…………………54
3.2. How to measure corruption……..………………………………………………….…..56
3.3. Explanatory variables for FDI equation…..………………………….…………………62
3.4. Explanatory variables for corruption equation……………………………….….…….66
3.5. Country sample……………………………….……………………….……………….74
3.6. Panel data………………………………………….………………………….….…….75
Chapter 4. The Effect of Corruption on FDI Inflows..……………………….………….…..80
4.1. Preliminary results of OLS fitted line………………………………………………….80
4.2. Theoretical model…………………………………………………..………………….88
4.3. Empirical framework……………………………………………..…………..……….94
4.4. Developed and developing countries: results and discussions ………………………..99
4.4.1. Model 1……………………………………………………………………………99
4.4.2. Model 2.…………………………………………………..…………………….106
4.4.3. Model 3……………………………………..……………………………….….107
4.4.4. Model 4……………………..……………………………………………..……108
4.4.5. Model 5……………………..……………………………………………..……109
4.5. Regions within developing countries category: results and discussions..……………109
4.5.1. Africa……………………………………………………………………………109
4.5.2. Latin America and the Caribbean.………………………..…………………….112
4.5.3. Asia and Oceania.………………………………………………………….……115
4.5.4. Southeast Europe and the CIS……………………………………………..……119
Chapter 5. The Determinants of Corruption.………………………………………….…..124
5.1. Developed and developing countries: results and discussions ………………………127
5.1.1. Model 1………………………………………………………………………….127
5.1.2. Model 2.…………………………………………………..…………………….132
5.1.3. Model 3…………………………………………………………………….……133
5.1.4. Model 4……………………..……………………………………………..……135
5.2. Regions within developing countries category: results and discussions…………..…139
5.2.1. Africa……………………………………………………………………………139
5.2.2. Latin America and the Caribbean.………………………..…………………….143
5.2.3. Asia and Oceania.………………………………………………………….……148
5.2.4. Southeast Europe and the CIS…………………………………………………..156
Chapter 6. Concluding Remarks……………………………………………………………..163
6.1. Summary of findings………………………..…………………………………………163
6.2. Policy recommendations………………………………………..……………….……165
6.3. Suggestions for future research………………………………..……………..………170
References………………………………………………………….……………………………172