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Country-level investments and the effect of corruption -- some empirical evidence

Author

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  • Habib, M.
  • Zurawicki, L.

Abstract

Corporate boardrooms and the popular business press have suggested corruption as a negative factor affecting investment in countries. This study empirically examined the impact of corruption using data on foreign and local direct investments in 111 countries over a five-year period (1994-1998). The results support the negative effects of corruption on investments. It also highlights an important and so far overlooked distinction: the impact of corruption on local direct investments is substantially weaker than the impact on its foreign counterpart. Furthermore, the degree of international openness and the political stability of the host market moderate the influence of corruption. Implications of corruption for investment promotion agencies as well as the multinational corporations are discussed. Host government agencies should be concerned about image building and providing optimal incentives for businesses. Multinationals should consider managing risks and simultaneously gaining competitiveness on an international scale.

Suggested Citation

  • Habib, M. & Zurawicki, L., 2001. "Country-level investments and the effect of corruption -- some empirical evidence," International Business Review, Elsevier, vol. 10(6), pages 687-700, December.
  • Handle: RePEc:eee:iburev:v:10:y:2001:i:6:p:687-700
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    Cited by:

    1. Godinez, Jose R. & Liu, Ling, 2015. "Corruption distance and FDI flows into Latin America," International Business Review, Elsevier, pages 33-42.
    2. repec:spr:manint:v:50:y:2010:i:2:d:10.1007_s11575-010-0028-1 is not listed on IDEAS
    3. Vittorio, Daniele & Ugo, Marani, 2008. "Organized Crime and Foreign Direct Investment: the Italian Case," MPRA Paper 7217, University Library of Munich, Germany.
    4. Basant, Rakesh & Mishra, Pulak, 2012. "How has the Indian Corporate Sector Responded to Two Decades of Economic Reforms in India? An Exploration of Patterns and Trends," IIMA Working Papers WP2012-02-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    5. Johan, Sofia & Zhang, Minjie, 2016. "Private equity exits in emerging markets," Emerging Markets Review, Elsevier, vol. 29(C), pages 133-153.
    6. Hawkes, Denise Donna & Yerrabati, Sridevi, 2015. "Institutions and investment in South and East Asia & Pacific region: Evidence from meta-analysis," Economics Discussion Papers 2015-62, Kiel Institute for the World Economy (IfW).
    7. Chensheng Xu & Feng Yao & Fan Zhang, 2015. "An Investigation of Confucius Institute’s Effects on China’s OFDI via Cultural Difference and Institutional Quality," Working Papers 15-45, Department of Economics, West Virginia University.
    8. repec:spr:manint:v:50:y:2010:i:6:d:10.1007_s11575-010-0055-y is not listed on IDEAS
    9. Graf Lambsdorff, Johann, 2005. "Consequences and causes of corruption: What do we know from a cross-section of countries?," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-34-05, University of Passau, Faculty of Business and Economics.
    10. Utz Weitzel & Sjors Berns, 2006. "Cross-border takeovers, corruption, and related aspects of governance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, pages 786-806.
    11. Nadia Doytch & Mesut Eren, 2012. "Institutional Determinants of Sectoral FDI in Eastern European and Central Asian Countries: The Role of Investment Climate and Democracy," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(S4), pages 14-32, November.
    12. Couttenier, Mathieu & Toubal, Farid, 2017. "Corruption for sales," Journal of Comparative Economics, Elsevier, pages 56-66.
    13. Demirbag, Mehmet & Glaister, Keith W. & Tatoglu, Ekrem, 2007. "Institutional and transaction cost influences on MNEs' ownership strategies of their affiliates: Evidence from an emerging market," Journal of World Business, Elsevier, vol. 42(4), pages 418-434, December.
    14. Paulus, Michal & Kristoufek, Ladislav, 2015. "Worldwide clustering of the corruption perception," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 428(C), pages 351-358.
    15. Oetzel, Jennifer, 2005. "Smaller may be beautiful but is it more risky? Assessing and managing political and economic risk in Costa Rica," International Business Review, Elsevier, vol. 14(6), pages 765-790, December.
    16. Laura Brancu, 2008. "La stabilité politique, une condition nécessaire mais pas suffisante pour attirer les firmes multinationales en Roumanie," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 11(27), pages 67-81, January.
    17. Zwinkels, Remco C.J. & Beugelsdijk, Sjoerd, 2010. "Gravity equations: Workhorse or Trojan horse in explaining trade and FDI patterns across time and space?," International Business Review, Elsevier, vol. 19(1), pages 102-115, February.
    18. repec:spr:manint:v:53:y:2013:i:6:d:10.1007_s11575-013-0180-5 is not listed on IDEAS
    19. Daniele, Vittorio & Marani, Ugo, 2011. "Organized crime, the quality of local institutions and FDI in Italy: A panel data analysis," European Journal of Political Economy, Elsevier, vol. 27(1), pages 132-142, March.
    20. Abdioglu, Nida & Bamiatzi, Vassiliki & Cavusgil, S.Tamer & Khurshed, Arif & Stathopoulos, Konstantinos, 2015. "Information asymmetry, disclosure and foreign institutional investment: An empirical investigation of the impact of the Sarbanes-Oxley Act," International Business Review, Elsevier, pages 902-915.
    21. Kodila Tedika, Oasis, 2012. "Consequences De La Corruption : Panorama Empirique
      [Consequences of Corruption : Empirical survey]
      ," MPRA Paper 41482, University Library of Munich, Germany.

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