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Does corruption relieve foreign investors of the burden of taxes and capital controls?

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  • Shang-Jin Wei

Abstract

In a sample of fourteen source countries making bilateral investments in forty five countries, the author finds that taxes, capital controls, and corruption, all have large, statistically significant negative effects on foreign investment. Moreover, there is no robust support in the data for the"efficient grease"hypothesis - that corruption helps attract foreign investment by reducing firms'tax burden and the irritant of capital controls.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2209.

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Date of creation: 31 Oct 1999
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Handle: RePEc:wbk:wbrwps:2209

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Keywords: International Terrorism&Counterterrorism; Capital Markets and Capital Flows; Decentralization; Fiscal&Monetary Policy; Economic Theory&Research; Economic Theory&Research; International Terrorism&Counterterrorism; Governance Indicators; National Governance; Capital Flows;

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References

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  1. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," NBER Working Papers 6030, National Bureau of Economic Research, Inc.
  2. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, Elsevier, vol. 48(1), pages 7-35, June.
  3. James R. Hines, Jr., 1995. "Forbidden Payment: Foreign Bribery and American Business After 1977," NBER Working Papers 5266, National Bureau of Economic Research, Inc.
  4. Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
  5. Mihir A. Desai & James R. Hines, Jr., 1996. ""Basket" Cases: International Joint Ventures After the Tax Reform Act of 1986," NBER Working Papers 5755, National Bureau of Economic Research, Inc.
  6. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(3), pages 681-712, August.
  7. Martin Feldstein & James R. Hines Jr. & R. Glenn Hubbard, 1995. "The Effects of Taxation on Multinational Corporations," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number feld95-2.
  8. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(4), pages 760-81, August.
  9. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, Elsevier, vol. 47(1), pages 61-95, June.
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Citations

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Cited by:
  1. International Monetary Fund, 2000. "Corruption and Military Spending," IMF Working Papers, International Monetary Fund 00/23, International Monetary Fund.
  2. Axel Dreher & Lars-H.R. Siemers, 2003. "The Intriguing Nexus Between Corruption and Capital Account Restrictions," Development and Comp Systems 0306004, EconWPA, revised 07 Apr 2004.
  3. Bitzenis, Aristidis & Tsitouras, Antonis & Vlachos, Vasileios A., 2009. "Decisive FDI obstacles as an explanatory reason for limited FDI inflows in an EMU member state: The case of Greece," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 38(4), pages 691-704, August.
  4. Klein, Michael & Aaron, Carl & Hadjimichael, Bita, 2001. "Foreign direct investment and poverty reduction," Policy Research Working Paper Series 2613, The World Bank.
  5. Axel Dreher & Martin Gassebner, 2007. "Greasing the wheels of entrepreneurship? The impact of regulations and corruption on firm entry," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 07-166, KOF Swiss Economic Institute, ETH Zurich.
  6. Jelena Budak & Edo Rajh, 2011. "Corruption as an Obstacle for Doing Business in the Western Balkans: A Business Sector Perspective," Working Papers, The Institute of Economics, Zagreb 1104, The Institute of Economics, Zagreb.
  7. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics, EconWPA 0506001, EconWPA.
  8. Kaufmann, Daniel & Montoriol-Garriga, Judit & Recanatini, Francesca, 2008. "How does bribery affect public service delivery ? micro-evidence from service users and public officials in Peru," Policy Research Working Paper Series 4492, The World Bank.

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