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Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms

  • Hakkala, Katariina

    ()

    (The Research Institute of Industrial Economics)

  • Norbäck, Pehr-Johan

    ()

    (The Research Institute of Industrial Economics)

  • Svaleryd, Helena

    ()

    (The Research Institute of Industrial Economics)

We examine the effect of corruption on foreign direct investments. Our model shows that corruption may have different effects on investments aimed at selling to a local market, in comparison to investments aimed at selling from the corrupt market. Using Swedish firm-level data, we find that affiliate local sales decrease with corruption, while affiliate exports increase. Finally, corruption has a negative effect on the probability that a foreign firm will invest in a country. These results are consistent with theory when bribing reduces production costs and local firms have an advantage in bribing vis à vis foreign firms.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 641.

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Length: 46 pages
Date of creation: 12 May 2005
Date of revision: 20 Aug 2007
Publication status: Published in The Review of Economics & Statistics, 2008, pages 627-642.
Handle: RePEc:hhs:iuiwop:0641
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
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  1. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2002. "Vertical FDI Revisited," Working Paper Series 579, Research Institute of Industrial Economics.
  2. Svensson, Jakob, 2000. "Who must pay bribes and how much? Evidence from a cross-section of firms," Policy Research Working Paper Series 2486, The World Bank.
  3. Ekholm, Karolina & Forslid, Rikard & Markusen, James R., 2003. "Export-Platform Foreign Direct Investment," CEPR Discussion Papers 3823, C.E.P.R. Discussion Papers.
  4. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
  5. Kugler, Maurice & Verdier, Thierry & Zenou, Yves, 2003. "Organized Crime, Corruption and Punishment," Working Paper Series 600, Research Institute of Industrial Economics.
  6. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," Working Paper Series rwp01-015, Harvard University, John F. Kennedy School of Government.
  7. Fisman, Raymond & Svensson, Jakob, 2000. "Are corruption and taxation really harmful to growth? - firm-level evidence," Policy Research Working Paper Series 2485, The World Bank.
  8. Shang-Jin Wei, 1997. "Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills," NBER Working Papers 6255, National Bureau of Economic Research, Inc.
  9. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-81, August.
  10. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  11. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
  12. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  13. Mutti, John & Grubert, Harry, 2004. "Empirical asymmetries in foreign direct investment and taxation," Journal of International Economics, Elsevier, vol. 62(2), pages 337-358, March.
  14. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  15. Norbäck, Pehr-Johan, 1999. "Multinational Firms, Technology and Location," Working Paper Series 512, Research Institute of Industrial Economics, revised 02 Nov 2000.
  16. Yeaple, Stephen Ross, 2003. "The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment," Journal of International Economics, Elsevier, vol. 60(2), pages 293-314, August.
  17. Beata K. Smarzynska & Shang-Jin Wei, 2000. "Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence," NBER Working Papers 7969, National Bureau of Economic Research, Inc.
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