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Better the devil you don't know: Types of corruption and FDI in transition economies

  • Cuervo-Cazurra, Alvaro
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    Corruption has a negative impact on foreign direct investment (FDI). However, transition economies show high levels of corruption and also high levels of FDI. I argue that it is not the level but rather the type of corruption that affects FDI in transition economies. Pervasive corruption, or corruption that is widely present, acts as a deterrent to FDI because it increases the known costs of investing, while arbitrary corruption, or corruption that is uncertain, does not have such a deterring influence because it becomes part of the uncertainty of operating in transition economies. In transition economies, investors prefer to deal with an unknown evil - arbitrary corruption - rather than a known one - pervasive corruption.

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    Article provided by Elsevier in its journal Journal of International Management.

    Volume (Year): 14 (2008)
    Issue (Month): 1 (March)
    Pages: 12-27

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    Handle: RePEc:eee:intman:v:14:y:2008:i:1:p:12-27
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