National levels of corruption and foreign direct investment

Josef C. Brada; Zdenek Drabek; Jose Mendez; M. Fabricio Perez

doi:10.1016/j.jce.2018.10.005

National levels of corruption and foreign direct investment

Josef C. Brada, Zdenek Drabek, Jose Mendez, M. Fabricio Perez

Research output: Contribution to journal › Article › peer-review

58 Scopus citations

Abstract

We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.

Original language	English (US)
Pages (from-to)	31-49
Number of pages	19
Journal	Journal of Comparative Economics
Volume	47
Issue number	1
DOIs	https://doi.org/10.1016/j.jce.2018.10.005
State	Published - Mar 2019

Keywords

Competitive advantage
Corruption
Foreign direct investment
Multinational firms

ASJC Scopus subject areas

Economics and Econometrics

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10.1016/j.jce.2018.10.005

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title = "National levels of corruption and foreign direct investment",

abstract = "We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms{\textquoteright} (MCNs{\textquoteright}) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.",

keywords = "Competitive advantage, Corruption, Foreign direct investment, Multinational firms",

author = "Brada, {Josef C.} and Zdenek Drabek and Jose Mendez and Perez, {M. Fabricio}",

note = "Funding Information: We thank the Journal's referees for their helpful comments and suggestions, which materially improved the paper. We are also grateful for comments received from participants during presentations of previous versions of this paper at the University of Perugia, Peking University, Southwest Jiatong University, the Asian Economic Community Forum and the Conference on Economic Chalenges in Enlarged Europe. Brada and Drabek acknowledge the financial support received from Czech Science Foundation Grant Number 18-04630S. Perez acknowledges the financial support received from the Social Sciences and Humanaities Council of Canada's Grant Number 435-2017-0476 and and from the Arthur Wesley Downe Professorship of Finance. Publisher Copyright: {\textcopyright} 2018",

year = "2019",

month = mar,

doi = "10.1016/j.jce.2018.10.005",

language = "English (US)",

volume = "47",

pages = "31--49",

journal = "Journal of Comparative Economics",

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T1 - National levels of corruption and foreign direct investment

AU - Brada, Josef C.

AU - Drabek, Zdenek

AU - Mendez, Jose

AU - Perez, M. Fabricio

N1 - Funding Information: We thank the Journal's referees for their helpful comments and suggestions, which materially improved the paper. We are also grateful for comments received from participants during presentations of previous versions of this paper at the University of Perugia, Peking University, Southwest Jiatong University, the Asian Economic Community Forum and the Conference on Economic Chalenges in Enlarged Europe. Brada and Drabek acknowledge the financial support received from Czech Science Foundation Grant Number 18-04630S. Perez acknowledges the financial support received from the Social Sciences and Humanaities Council of Canada's Grant Number 435-2017-0476 and and from the Arthur Wesley Downe Professorship of Finance. Publisher Copyright: © 2018

PY - 2019/3

Y1 - 2019/3

N2 - We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.

AB - We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.

KW - Competitive advantage

KW - Corruption

KW - Foreign direct investment

KW - Multinational firms

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National levels of corruption and foreign direct investment

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Keywords

ASJC Scopus subject areas

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