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Corruption and Multinational Companies’ Entry Modes.Do Linguistic and Historical Ties Matter?

  • Marlene Grande

    ()

    (Faculdade de Economia do Porto, Universidade do Porto)

  • Aurora A.C. Teixeira

    ()

    (CEF.UP, Faculdade de Economia do Porto, Universidade do Porto; INESC Porto; OBEGEF)

Extant literature on FDI entry modes and corruption tend to convey the idea that corruption leads to the choice of low equity, i.e. joint-ventures with local partners, or non-equity modes, namely export and contracting, in order to avoid the contact with corrupt state officials. Recently, some studies argument that despite corruption, linguistic and historical ties between home and host countries guide MNCs to prefer high equity modes. Focusing on a rather unexplored setting, the African countries, most specifically the PALOP (Países Africanos de Língua Oficial Portuguesa), which includes countries with both very high (e.g., Guinea-Bissau, and Angola), high (e.g., Mozambique, Sao Tome and Principe) and middle (e.g., Cape Verde) levels of corruption, and that maintain quite close linguistic and historical ties with Portugal, we found that FDI entry mode is associated to the less corrupt markets. Thus, our results do not support the content that cultural and historical links are likely to perform an intermediating role in helping, through fostering foreign direct investment, African countries to overpass the dismissal growth that some have been facing in the last decades. On the contrary, our findings highlight the pressing need for these countries to combat corruption if higher economic growth via FDI attraction is envisioned.

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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 417.

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Length: 23 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:por:fepwps:417
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