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Corruption level and uncertainty, FDI and domestic investment

Author

Listed:
  • Jan Hanousek

    (Charles University and the Economics Institute of the Czech Academy of Sciences
    Mendel University in Brno
    CEPR Centre for Economic Policy Research)

  • Anastasiya Shamshur

    (University of Kent)

  • Jan Svejnar

    (Columbia University)

  • Jiri Tresl

    (University of Mannheim)

Abstract

Based on real options theory and institutional factors, we develop a theoretical framework for investment in the presence of corruption and use a sample of private firms in 13 European countries over 2001–2013 to carry out the first large-scale analysis of the impact of the level of corruption and uncertainty about corruption on post-entry investment of MNE subsidiaries. We employ several waves of managerial surveys (the Business Environment and Enterprise Performance Survey; BEEPS) to construct local- rather than merely country-level measures of corruption level and uncertainty. In combination with a large European firm-level database (Amadeus), we show that corruption uncertainty and corruption level do not have an effect on the investment of MNE subsidiaries. We next carry out the analysis on the sample of domestic firms and find a negative investment effect that is driven primarily by corruption uncertainty rather than corruption level. We also show that investment of domestic firms that are similar (matched) to MNE subsidiaries is unaffected directly by corruption, but is affected by uncertainties related to finances and judiciary. Our results are robust to controlling for various types of uncertainty, and they provide new insights into the effects of corruption on investment.

Suggested Citation

  • Jan Hanousek & Anastasiya Shamshur & Jan Svejnar & Jiri Tresl, 2021. "Corruption level and uncertainty, FDI and domestic investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(9), pages 1750-1774, December.
    • Handle: RePEc:pal:jintbs:v:52:y:2021:i:9:d:10.1057_s41267-021-00447-w
    DOI: 10.1057/s41267-021-00447-w
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