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Opportunism, Corruption and the Multinational Firm’s Mode of Entry

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Author Info
Stephane Straub ()

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Abstract

The paper models the boundaries of the multinational firm by looking at a simple trade-off between FDI (internal expansion with strong control rights) and debt (arm’s length expansion with loose control rights) in the context of contractual incompleteness due to institutional constraints in host countries, i.e. problems of commitment and, especially, corruption. It develops a theoretical approach to the two main types of corruption: petty bureaucratic corruption and high-level political corruption. The model predicts that multinational firms prefer FDI the weaker the ability to commit of the host country, while both types of corruption shift the trade-off marginally toward debt. Cross-country panel empirical evidence supports these conclusions.

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Publisher Info
Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 102.

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Length: 45
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:edn:esedps:102

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Related research
Keywords: FDI; Debt; Multinational firms; Capital flows; Expropriation; Corruption.;

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Find related papers by JEL classification:
F2 - International Economics - - International Factor Movements and International Business
F3 - International Economics - - International Finance

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  5. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-59, January. [Downloadable!] (restricted)
  6. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
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  7. Eckhard Janeba, 2002. "Attracting Fdi in a Politically Risky World," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1127-1155, November. [Downloadable!] (restricted)
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  9. Shang-Jin Wei, 2000. "Corruption, composition of capital flows, and currency crises," Policy Research Working Paper Series 2429, The World Bank. [Downloadable!]
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  11. Schnitzer, Monika, 2002. "Debt v. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows," Economica, London School of Economics and Political Science, vol. 69(273), pages 41-67, February. [Downloadable!] (restricted)
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  12. Howard, J. V., 1992. "A social choice rule and its implementation in perfect equilibrium," Journal of Economic Theory, Elsevier, vol. 56(1), pages 142-159, February. [Downloadable!] (restricted)
  13. Blomström, Magnus & Kokko, Ari, 1996. "Multinational Corporations and Spillovers," Working Paper Series in Economics and Finance 99, Stockholm School of Economics.
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  14. Beata K. Smarzynska & Shang-Jin Wei, 2000. "Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence," NBER Working Papers 7969, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Jonathan Eaton & Mark Gersovitz, 1984. "A Theory of Expropriation and Deviations From Perfect Capital Mobility," NBER Working Papers 0972, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Fosfuri, Andrea, 2000. "Patent protection, imitation and the mode of technology transfer," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1129-1149, October. [Downloadable!] (restricted)
  20. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer, vol. 1(3), pages 211-225, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stephane, 2005. "Infrastructure concessions in Latin America : government-led renegotiations," Policy Research Working Paper Series 3749, The World Bank. [Downloadable!]
  2. J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2005. "Concessions of Infrastructure in Latin America: Government-led Renegotiation," ESE Discussion Papers 132, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
    Other versions:
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