FDI,democracy and corruption in Sub-Saharan Africa

This paper investigates the relationship between FDI, democracy and corruption among 30 countries in Sub-Saharan Africa (SSA) over the period of 1985–2014 to determine whether the ‘helping hand’ or ‘grabbing hand’ hypothesis is most applicable. The results of GMM analysis show that corruption is used by FDI investors to overcome the region’s weak democratic regulatory and institutional status and thus the ‘helping hand’ is more prevalent. However, the results further show that as democratic capital accumulates, this association may outlive its usefulness and thus corruption as a ‘helping hand’ in time becomes a ‘grabbing hand’ instead. These results imply that SSA countries should focus on integrating into the international economy so as to take advantage of existing financial enforcement legislation while reconstructing and strengthening domestic constitutional anti-corruption legislation and institutions.