The Impact of Transparency on Foreign Direct Investment
AbstractNon-transparency is a term given in this paper to a set of government policies that increase the risk and uncertainty faced by economic actors (foreign investors). The higher in risk and uncertainty stem from the presence of bribery and corruption, unstable economic policies, weak and poorly enforced property rights, and inefficient government institutions. Our empirical analysis shows that the degree of non-transparency is an important factor in a country's attractiveness to foreign investors. High levels of non-transparency can greatly retard the amount of foreign investment that a country might otherwise expect. The simulation exercise presented in the statistical part of this paper reveals that on average a country could expect 40 percent increase in FDI from a one point increase in their transparency ranking. Pari passu, non-transparent policies translate into lower levels of FDI and hence lower levels of welfare and efficiency in the host country's economy. A nation that takes steps to increase the degree of transparency in its policies and institutions could expect significant increases in the level of foreign investment into their country. This increased investment translates into more resources, which in turn increase social welfare and economic efficiency.
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 17 (2002)
Issue (Month): ()
Foreign Direct Investment; Transparency; Corruption; FDI Modeling;
Find related papers by JEL classification:
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
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- Kaufmann, Daniel & Bellver, Ana, 2005. "Transparenting Transparency: Intial Empirics and Policy Applications," MPRA Paper 8188, University Library of Munich, Germany.
- Wu, Shih-Ying, 2006. "Corruption and cross-border investment by multinational firms," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 839-856, December.
- Ronald B. Davies, 2003.
"Tax Treaties, Renegotiations, and Foreign Direct Investment,"
University of Oregon Economics Department Working Papers
2003-14, University of Oregon Economics Department, revised 10 Jun 2003.
- Davies, Ronald B., 2003. "Tax Treaties, Renegotiations, and Foreign Direct Investment," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 33(2), pages 251-273, September.
- Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December.
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