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National levels of corruption and foreign direct investment

Author

Listed:
  • Brada, Josef C.
  • Drabek, Zdenek
  • Mendez, Jose A.
  • Perez, M. Fabricio

Abstract

We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.

Suggested Citation

  • Brada, Josef C. & Drabek, Zdenek & Mendez, Jose A. & Perez, M. Fabricio, 2019. "National levels of corruption and foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 47(1), pages 31-49.
    • Handle: RePEc:eee:jcecon:v:47:y:2019:i:1:p:31-49
    DOI: 10.1016/j.jce.2018.10.005
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    More about this item

    Keywords

    Corruption; Foreign direct investment; Competitive advantage; Multinational firms;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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