How Corruption Influences Foreign Direct Investment: A Panel Data Study
This article analyzes the sign and development of the effect of corruption on foreign direct investment (FDI). Economic theory distinguishes grabbing hand corruption from helping hand corruption. The former suggests a negative impact of corruption on FDI, the latter one a positive effect. Empirically, we apply a data set of 21 home and 59 developed and less developed host countries covering between 1983 and 1999. To investigate the corruption impact, we employ a panel data model that particularly refers to the knowledge-capital model of multinational activity. We find a negative relationship between corruption and FDI. This, in turn, suggests that the helping hand effects of corruption are outweighed by the grabbing hand effects. Further, we observe that corruption is an important impediment of FDI in developed economies but not in less developed ones. Finally, we demonstrate that the importance of corruption has decreased over the years.
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Volume (Year): 54 (2006)
Issue (Month): 2 (January)
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- Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-781, August.
- Markusen, James R., 2002.
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- James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, March.
- Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much?," Journal of Development Economics, Elsevier, vol. 65(2), pages 307-331, August.
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