Far From Home: Do Foreign Investors Import Higher Standards of Governance in Transition Economies?
AbstractBased on the Business Environment and Enterprise Performance Survey (BEEPS) of firms in transition countries, which unbundles corruption to measure different types of corrupt transactions and provide detailed information on the characteristics and performance of firms, we find that: i) corruption reduces FDI inflows and attracts lower quality investment in terms of governance standards; ii) in misgoverned settings, FDI firms may magnify the problems of state capture and procurement kickbacks, while paying a lower overall bribe burden than domestic firms; iii) FDI firms undertake those forms of corruption that suit their comparative advantages, generating substantial gains for them and challenging the premise that they are coerced, which makes it difficult to develop effective constraints on such behavior; and, iv) transnational legal restrictions to prevent bribery had not led to higher standards of corporate conduct among foreign investors by the year 2000. Rather than being construed as a case against foreign investment; we argue that state capture is created and maintained through restrictions on competition and entry in strategic sectors. Thus, enhancing competition by attracting a wider, more diverse set of FDI firms is critical to the broader strategic framework of fighting state capture and corruption.
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Bibliographic InfoPaper provided by EconWPA in its series Development and Comp Systems with number 0308006.
Length: 28 pages
Date of creation: 27 Aug 2003
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foreign direct investment; FDI; kickbacks; state capture; bribery; corporate governance; corruption; governance; transition economies;
Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
- H0 - Public Economics - - General
- K0 - Law and Economics - - General
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- L5 - Industrial Organization - - Regulation and Industrial Policy
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- P2 - Economic Systems - - Socialist Systems and Transition Economies
- P5 - Economic Systems - - Comparative Economic Systems
- M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
- P0 - Economic Systems - - General
- H4 - Public Economics - - Publicly Provided Goods
- K2 - Law and Economics - - Regulation and Business Law
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-08-31 (All new papers)
- NEP-EEC-2003-08-31 (European Economics)
- NEP-IFN-2003-08-31 (International Finance)
- NEP-LAW-2003-08-31 (Law & Economics)
- NEP-PBE-2003-08-31 (Public Economics)
- NEP-POL-2003-08-31 (Positive Political Economics)
- NEP-TRA-2003-08-31 (Transition Economics)
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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"Do Corrupt Governments Receive Less Foreign Aid?,"
American Economic Review,
American Economic Association, vol. 92(4), pages 1126-1137, September.
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- Maria Del Mar Salinas-Jimenez & Javier Salinas-Jimenez, 2006. "Corruption and Productivity Growth in OECD Countries," ERSA conference papers ersa06p99, European Regional Science Association.
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