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Foreign Direct Investment, Corruption, and Institutional Reforms

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  • Rafael Salvador Espinosa Ramirez

Abstract

Corruption impacts the competitive conditions among firms and the flow of foreign investment. Institutional reforms made for fighting against corruption are sometimes useless. We develop a model in which a corrupted government tries to set an optimal institutional level taking into account the cost of this policy on foreign investment, the benefit of a corrupted domestic firm and the benefit of local citizens. A political contribution is made by a corrupted lobby group in order to benefit from a lower institutional level. Our results suggest that the optimal institutional level depends on the degree of efficiency of firms and the level of corruption of the host government. Key words: Corruption, Lobbying, Institutional reforms, Foreign direct investment. JEL: F21, F30, K42.

Suggested Citation

  • Rafael Salvador Espinosa Ramirez, 2022. "Foreign Direct Investment, Corruption, and Institutional Reforms," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 69(1), pages 17-34.
    • Handle: RePEc:voj:journl:v:69:y:2022:i:1:p:17-34:id:711
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    More about this item

    Keywords

    Corruption; Lobbying; Institutional reforms; Foreign direct investment;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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