THE EFFECT OF CORRUPTION PERCEPTION INDEX ON DIRECT FOREIGN INVESTMENT IN ASEAN

Abstract

Foreign direct investment is the largest source of external funds in both developed and developing countries. Some literature explains that one of the barriers to investment flow is corruption. Thus, this study aims to determine the effect of corruption as measured by the corruption perception index on foreign direct investment. Corruption is a political risk that affects the flow of foreign direct investment. The estimation results of the Generalized Method of Moment (GMM) show that the corruption perception index has a significant positive effect on foreign direct investment. The author also uses market seeking and efficiency seeking variables as potential factors that influence investors to direct foreign direct investment.