The Effect of Financial and Administrative Corruption on Attracting Foreign Direct Investment in Iraq (2009-2023)

Abstract

This research aims to analyze the impact of financial and administrative corruption on the process of attracting foreign direct investment (FDI) in Iraq's economy during the period from 2009 to 2023. Given the institutional and structural complexities in Iraq's economy, this study employs a novel approach, which includes analyzing corruption regimes using the C-Means fuzzy clustering algorithm and modeling the dynamics of corruption changes through a Markov transition probability matrix. Additionally, by applying a multivariate interactive regression model within the statistical framework of MATLAB software, the study examines the effect of corruption as a multifaceted and dynamic factor on the relationship between key economic variables (GDP, inflation rate, ease of doing business) and FDI attraction.

The obtained results indicate the existence of stable yet variable corruption regimes and demonstrate that corruption not only directly reduces FDI attraction but also moderates the effect of key economic variables at different levels of corruption. Among the key findings are the negative and significant impact of the ease of doing business on investment attraction across all regimes and the varying effects of inflation and GDP in different corruption regimes. This study emphasizes that anti-corruption policies must be designed within strategic frameworks tailored to the characteristics of each corruption regime to help improve Iraq's investment climate.