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Rent(s) Asunder: Sectoral Rent Extraction Possibilities and Bribery by Multinational Corporations

Author

Listed:
  • Edmund Malesky

    () (University of California, San Diego)

  • Nathan Jensen

    () (Washington University)

  • Dimitar Gueorguiev

    () (University of California, San Diego)

Abstract

We argue that openness to foreign investment can have differential effects on corruption, even within the same country and under the exact same domestic institutions over time. Our theoretical approach departs from standard political economy by attributing corruption motives to firms as well as officials. Rather than interpreting bribes solely as a coercive "tax" imposed on business activities, we allow for the possibility that firms may be complicit in using bribes to enter protected sectors. Thus, we expect variation in bribe propensity across sectors according to expected profitability which we proxy with investment restrictions. Specifically, we argue that foreign investment will not be associated with corruption in sectors with fewer restrictions and more competition, but will increase dramatically as firms seek to enter restricted and uncompetitive sectors that offer higher rents. We test this effect using a list experiment, a technique drawn from applied psychology, embedded in a nationally representative survey of 10,000 foreign and domestic businesses in Vietnam. Our findings show that the impact of domestic reforms and economic openness on corruption is conditional on polices that restrict competition by limiting entry into the sector.

Suggested Citation

  • Edmund Malesky & Nathan Jensen & Dimitar Gueorguiev, 2011. "Rent(s) Asunder: Sectoral Rent Extraction Possibilities and Bribery by Multinational Corporations," Working Paper Series WP11-20, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp11-20
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    Cited by:

    1. Richard Pomfret, 2013. "ASEAN's New Frontiers: Integrating the Newest Members into the ASEAN Economic Community," Asian Economic Policy Review, Japan Center for Economic Research, vol. 8(1), pages 25-41, June.

    More about this item

    Keywords

    Corruption; Bribery; Rents; Foreign Direct Investment; Multi-National Corporations; World Trade; Organization; Restrictions; List Question; FDI; MNC; UCT; WTO;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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