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Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms

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  • Katariina Nilsson Hakkala

    (Helsinki School of Economics and the Government Institute for Economic Research (VATT))

  • Pehr-Johan Norbäck

    (Research Institute of Industrial Economics, Stockholm)

  • Helena Svaleryd

    (Research Institute of Industrial Economics, Stockholm)

Abstract

We examine the effect of corruption on foreign direct investment (FDI). Starting out from the theory of FDI, we show that corruption can have different effects on horizontal investments, which are primarily aimed at sales to the local market, compared with vertical investments, which are made to access lower factor costs for export sales. Using Swedish firm-level data, we find that corruption reduces the probability that a firm will invest in a country. Moreover, when studying the different types of investments, we find that horizontal investments, measured by affiliate local sales, are deterred by corruption to a larger extent than are vertical investments. We are also able to establish a causal effect of corruption on FDI. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 90 (2008)
Issue (Month): 4 (November)
Pages: 627-642

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Handle: RePEc:tpr:restat:v:90:y:2008:i:4:p:627-642

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  1. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2007. "Export-Platform Foreign Direct Investment," Journal of the European Economic Association, MIT Press, MIT Press, vol. 5(4), pages 776-795, 06.
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  9. Kugler, Maurice & Verdier, Thierry & Zenou, Yves, 2004. "Organised crime, corruption and punishment," Discussion Paper Series In Economics And Econometrics, Economics Division, School of Social Sciences, University of Southampton 0407, Economics Division, School of Social Sciences, University of Southampton.
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Cited by:
  1. Arin, K. Peren & Chmelarova, Viera & Feess, Eberhard & Wohlschlegel, Ansgar, 2011. "Why are corrupt countries less successful in consolidating their budgets?," Journal of Public Economics, Elsevier, Elsevier, vol. 95(7-8), pages 521-530, August.
  2. Norbäck, Pehr-Johan & Duanmu , Jing-Lin & Skedinger, Per, 2012. "Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data," Working Paper Series, Research Institute of Industrial Economics 935, Research Institute of Industrial Economics.
  3. Karpaty, Patrik & Gustavsson Tingvall, Patrik, 2011. "Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?," Working Papers, Örebro University, School of Business 2011:2, Örebro University, School of Business, revised 28 May 2012.
  4. Söderlund, Bengt & Gustavsson Tingvall, Patrik, 2012. "Dynamic Effects of Institutions on Firm-Level Exports," Ratio Working Papers, The Ratio Institute 184, The Ratio Institute.
  5. Kotov, Denis, 2008. "How Changing Investment Climate Impacts on the Foreign Investors Investment Decision: Evidence from FDI in Germany," MPRA Paper 8777, University Library of Munich, Germany.
  6. Heyman, Fredrik & Gustavsson Tingvall, Patrik, 2012. "The Dynamics of Offshoring and Institutions," Working Paper Series, Research Institute of Industrial Economics 919, Research Institute of Industrial Economics.
  7. Ledyaeva, Svetlana & Karhunen, Päivi & Kosonen, Riitta, 2013. "Birds of a feather: Evidence on commonality of corruption and democracy in the origin and location of foreign investment in Russian regions," European Journal of Political Economy, Elsevier, Elsevier, vol. 32(C), pages 1-25.
  8. Ayca, Tekin-Koru, 2012. "Cross-border M&As vs. Greenfield Investments: Does Corruption Make a Difference?," MPRA Paper 42857, University Library of Munich, Germany.
  9. Davide Fantino & Alessandra Mori & Diego Scalise, 2012. "Collaboration between firms and universities in Italy: the role of a firm’s proximity to top-rated departments," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 884, Bank of Italy, Economic Research and International Relations Area.
  10. Serena Fatica, 2010. "Taxation and the Quality of Institutions: Asymmetric Effects on FDI," Taxation Papers, Directorate General Taxation and Customs Union, European Commission 21, Directorate General Taxation and Customs Union, European Commission.
  11. Barassi, Marco R. & Zhou, Ying, 2012. "The effect of corruption on FDI: A parametric and non-parametric analysis," European Journal of Political Economy, Elsevier, Elsevier, vol. 28(3), pages 302-312.
  12. Kotov, Denis, 2009. "How Decisions on Investing in Russia are made by German Firms?," MPRA Paper 16373, University Library of Munich, Germany.
  13. Tingvall, Patrik, 2011. "Dynamic Effects of Corruption on Offshoring," Ratio Working Papers, The Ratio Institute 182, The Ratio Institute.
  14. Dahlström, Tobias & Johnson, Andreas, 2007. "Bureaucratic Corruption, MNEs and FDI," Working Paper Series in Economics and Institutions of Innovation, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies 82, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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