Does corruption matter?

Sammanfattning: Globalization and more open economies has over the last two decades led to an increase of FDI which has been argued to lead to economic growth. So far economists are not unanimous on to what extent or fully agreed upon if certain other conditions have to be fulfilled for this to be true. In newer research on economic development scientists emphasize the importance of institutions for economic growth. The interaction between institutions and other variables affecting economic growth has become more important to understand, especially in developing countries. This thesis is examining if FDI affect economic growth in developing countries and if there is an interaction between FDI and corruption affecting economic growth. Knowing how institutions affect development will make it easier to know which measures that needs to be taken to achieve better conditions for economic growth. The focus and research questions are following: • Does FDI affect economic growth in developing countries? • Is there an interaction effect between FDI and informal institutions affecting economic growth? One key finding is that FDI have a positive effect on economic growth. Additionally, when a possible interaction effect between FDI inflow and corruption is taken into consideration, no significant results are found. As this thesis however only covers developing countries a higher significance level can be argued to be tolerated, and two trends have been found: higher levels of corruption make FDI have a less positive effect on economic growth, and the more FDI a country receive, the worse corruption is for economic growth. The area can and should be explored further and more research is needed before any stronger conclusions can be made.