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Country-level investments and the effect of corruption -- some empirical evidence

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  • Habib, M.
  • Zurawicki, L.
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    Abstract

    Corporate boardrooms and the popular business press have suggested corruption as a negative factor affecting investment in countries. This study empirically examined the impact of corruption using data on foreign and local direct investments in 111 countries over a five-year period (1994-1998). The results support the negative effects of corruption on investments. It also highlights an important and so far overlooked distinction: the impact of corruption on local direct investments is substantially weaker than the impact on its foreign counterpart. Furthermore, the degree of international openness and the political stability of the host market moderate the influence of corruption. Implications of corruption for investment promotion agencies as well as the multinational corporations are discussed. Host government agencies should be concerned about image building and providing optimal incentives for businesses. Multinationals should consider managing risks and simultaneously gaining competitiveness on an international scale.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Business Review.

    Volume (Year): 10 (2001)
    Issue (Month): 6 (December)
    Pages: 687-700

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    Handle: RePEc:eee:iburev:v:10:y:2001:i:6:p:687-700

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    Related research

    Keywords: Investment Corruption Foreign direct investment;

    References

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    1. Drabek, Z. & Payne, W., 1999. "The Impact of Transparency on Foreign Direct Investment," Papers 99-02, Stanford - Institute for Thoretical Economics.
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    Citations

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    Cited by:
    1. Graf Lambsdorff, Johann, 2005. "Consequences and causes of corruption: What do we know from a cross-section of countries?," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-34-05, University of Passau, Faculty of Business and Economics.
    2. Daniele, Vittorio & Marani, Ugo, 2011. "Organized crime, the quality of local institutions and FDI in Italy: A panel data analysis," European Journal of Political Economy, Elsevier, vol. 27(1), pages 132-142, March.
    3. Oetzel, Jennifer, 2005. "Smaller may be beautiful but is it more risky? Assessing and managing political and economic risk in Costa Rica," International Business Review, Elsevier, vol. 14(6), pages 765-790, December.
    4. Kodila Tedika, Oasis, 2012. "Consequences De La Corruption : Panorama Empirique
      [Consequences of Corruption : Empirical survey]
      ," MPRA Paper 41482, University Library of Munich, Germany.
    5. Zwinkels, Remco C.J. & Beugelsdijk, Sjoerd, 2010. "Gravity equations: Workhorse or Trojan horse in explaining trade and FDI patterns across time and space?," International Business Review, Elsevier, vol. 19(1), pages 102-115, February.
    6. Demirbag, Mehmet & Glaister, Keith W. & Tatoglu, Ekrem, 2007. "Institutional and transaction cost influences on MNEs' ownership strategies of their affiliates: Evidence from an emerging market," Journal of World Business, Elsevier, vol. 42(4), pages 418-434, December.
    7. Basant, Rakesh & Mishra, Pulak, . "How has the Indian Corporate Sector Responded to Two Decades of Economic Reforms in India? An Exploration of Patterns and Trends," IIMA Working Papers WP2012-02-02, Indian Institute of Management Ahmedabad, Research and Publication Department.

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