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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Hakkala, Katariina & Norbäck, Pehr-Johan & Svaleryd, Helena, 2005. "Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms," Working Paper Series 641, Research Institute of Industrial Economics, revised 20 Aug 2007.
  • Handle: RePEc:hhs:iuiwop:0641
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    FDI; Corruption; Multinational Firm;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • 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

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