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Deception, corruption and 'schizophrenia' in an incomplete-information model of foreign direct investment

Author

Listed:
  • David E Hojman

    () (University of Liverpool)

Abstract

Not all potential investors are equally discouraged by host country corruption. Some investors may actually benefit from it, especially if deception as to the true value of their investments is possible. A model is presented and tested with data for Latin America's top seven hosts and top eight sources of foreign direct investment. In general, FDI is not affected by host corruption, but sometimes it responds (mostly negatively) to the gap between the corruption indices of source and host and, to a lesser extent, to the gap in degrees of economic freedom. There is substantial heterogeneity among source countries.

Suggested Citation

  • David E Hojman, 2001. "Deception, corruption and 'schizophrenia' in an incomplete-information model of foreign direct investment," Research Papers 2001_01, University of Liverpool Management School.
  • Handle: RePEc:liv:livedp:2001_01
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    More about this item

    Keywords

    Foreign direct investment (FDI); Corruption; Incomplete information; Country heterogeneity; Latin America;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • N46 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Latin America; Caribbean
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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