The impact of public and private sector transparency on foreign direct investment in developing countries

Purpose This paper aims to examine the role of public and private transparency in attracting inward foreign direct investment (FDI) flows to developing countries. Design/methodology/approach The study tests the hypothesis that developing countries with low levels of public and private sector transparency attract lower levels of FDI inflows. It also tests the hypotheses that private sector transparency in developing countries has a greater impact on inward FDI than public sector transparency. A cross‐sectional model was tested for 58 developing countries (using regression analysis) over the 2003‐2006 period. Findings The empirical analysis shows that: private sector transparency has a significant and positive effect on inward FDI flows to developing countries; public sector transparency has a positive and significant effect on FDI inflows; and private sector transparency has a greater influence on FDI inflows to developing countries than public sector transparency. Originality/value This is the first study to examine the impact of different forms of transparency on FDI. Existing studies tend to examine the subject in a separate fashion without considering their joint effect on foreign investment inflows.