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Impact of Corruption on Foreign Direct Investment, Tax Revenues and Trade in Afghanistan: An Empirical Examination and Literature Review

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  • Karokhi, Somaya
  • Rasa, Mohammad Mirwais

Abstract

Using Transparency International’s Corruption Perceptions Index (CPI), this study establishes a statistically significant link between CPI and foreign direct investment (FDI) in Afghanistan. In addition to each country’s CPI, several location and economic characteristics are also postulated to influence FDI. For 2003- 2019 in Afghanistan, the paper then simulates the impact of an improvement in the CPI score on FDI. This simulation shows that a one-point improvement in CPI would generate on average additional FDI of 0.5% of GDP. The paper further simulates the effects of larger FDI on the generation of taxable income and tax revenues in Afghanistan using year’s specific rates of return on Afghanistan investment and the highest marginal corporate tax rate in Afghanistan. This simulation shows that a three-point improvement in CPI would more than double the corporate tax take on average with the biggest beneficiaries.

Suggested Citation

  • Karokhi, Somaya & Rasa, Mohammad Mirwais, 2020. "Impact of Corruption on Foreign Direct Investment, Tax Revenues and Trade in Afghanistan: An Empirical Examination and Literature Review," MPRA Paper 122672, University Library of Munich, Germany, revised 08 Jun 2021.
    • Handle: RePEc:pra:mprapa:122672
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade; Corruption; FDI; Tax Revenues; Afghanistan;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances

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