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Foreign direct investment & petty corruption in Sub-Saharan Africa: An empirical analysis at the local level

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  • Donaubauer, Julian
  • Kannen, Peter
  • Steglich, Frauke

Abstract

Inspired by a recent and ongoing debate about whether foreign direct investment (FDI) represents a blessing for or an impediment to economic, social, and political development in FDI host countries this paper addresses two issues: Does the presence of foreign investors impact the occurrence of petty corruption? If so, what are the main underlying mechanisms? Geocoding an original firm-level dataset and combining it with georeferenced household survey data, this is a first attempt to analyze whether the presence of foreign investors is associated with changes in local corruption around foreign-owned production facilities in 19 Sub-Saharan African countries. Applying an estimation strategy that explores the spatial and temporal variation in the data, we find strong and consistent evidence that the presence of foreign firms increases bribery among people living nearby. When examining two potential channels, we find no support that FDI-induced economic activity leads to more corruption. In contrast, the results provide evidence that FDI affects corruption via norm transmission.

Suggested Citation

  • Donaubauer, Julian & Kannen, Peter & Steglich, Frauke, 2019. "Foreign direct investment & petty corruption in Sub-Saharan Africa: An empirical analysis at the local level," KCG Working Papers 16, Kiel Centre for Globalization (KCG).
  • Handle: RePEc:zbw:kcgwps:16
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    Cited by:

    1. Dagim Tadesse Bekele, 2020. "Effect of Macroeconomic, Demographic, and Governance Factors on Income Inequality of Selected sub-Saharan Africa Countries," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 9(1), pages 60-70, September.

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    More about this item

    Keywords

    FDI; corruption; georeferenced data; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • 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
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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