The impact of the shadow economy on foreign direct investment

ABSTRACT

This study investigates the impact of the shadow economy on foreign direct investment (FDI). The result shows that the shadow economy exhibits no clear impact on FDI inflow. However, examining FDI by its types of entry, we find that the shadow economy positively influences greenfield investments and negatively affects cross-border M&As. The results are robust to a number of sensitivity checks.

KEYWORDS:

• Shadow economy
• FDI
• greenfield investments
• cross-border M&As

JEL CLASSIFICATION:

• C23
• E26
• F10

Disclosure statement

No potential conflict of interest was reported by the authors.