IDEAS home Printed from https://ideas.repec.org/p/zbw/kcgwps/16.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/201398/1/1670021912.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carl Henrik Knutsen & Andreas Kotsadam & Eivind Hammersmark Olsen & Tore Wig, 2017. "Mining and Local Corruption in Africa," American Journal of Political Science, John Wiley & Sons, vol. 61(2), pages 320-334, April.
    2. Chuck C Y Kwok & Solomon Tadesse, 2006. "The MNC as an agent of change for host-country institutions: FDI and corruption," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(6), pages 767-785, November.
    3. Naci Mocan, 2008. "What Determines Corruption? International Evidence From Microdata," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 493-510, October.
    4. Isaksson, Ann-Sofie & Kotsadam, Andreas, 2018. "Chinese aid and local corruption," Journal of Public Economics, Elsevier, vol. 159(C), pages 146-159.
    5. Javorcik, Beata S. & Wei, Shang-Jin, 2009. "Corruption and cross-border investment in emerging markets: Firm-level evidence," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 605-624, June.
    6. Jahnke, Björn & Weisser, Reinhard A., 2019. "How does petty corruption affect tax morale in Sub-Saharan Africa?," European Journal of Political Economy, Elsevier, vol. 60(C).
    7. Achten, Sandra & Lessmann, Christian, 2020. "Spatial inequality, geography and economic activity," World Development, Elsevier, vol. 136(C).
    8. Edmund J. Malesky & Dimitar D. Gueorguiev & Nathan M. Jensen, 2015. "Monopoly Money: Foreign Investment and Bribery in Vietnam, a Survey Experiment," American Journal of Political Science, John Wiley & Sons, vol. 59(2), pages 419-439, February.
    9. Gueorguiev, Dimitar & Malesky, Edmund, 2012. "Foreign investment and bribery: A firm-level analysis of corruption in Vietnam," Journal of Asian Economics, Elsevier, vol. 23(2), pages 111-129.
    10. Philipp Harms & Pierre†Guillaume Méon, 2018. "Good and useless FDI: The growth effects of greenfield investment and mergers and acquisitions," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 37-59, February.
    11. Jahnke, Bjoern, 2015. "How does petty corruption affect tax morale in sub-Saharan Africa? An empirical analysis," Hannover Economic Papers (HEP) dp-564, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    12. Antonio Bojanic, 2014. "The effect of coca and FDI on the level of corruption in Bolivia," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 23(1), pages 1-23, December.
    13. Javorcik, Beata S. & Spatareanu, Mariana, 2011. "Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors," Journal of Development Economics, Elsevier, vol. 96(1), pages 126-138, September.
    14. Larrain B., Felipe & Tavares, José, 2007. "Can Openness Deter Corruption? The Role of Foreign Direct Investment," CEPR Discussion Papers 6488, C.E.P.R. Discussion Papers.
    15. Olken, Benjamin A., 2009. "Corruption perceptions vs. corruption reality," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 950-964, August.
    16. J. Vernon Henderson & Adam Storeygard & David N. Weil, 2012. "Measuring Economic Growth from Outer Space," American Economic Review, American Economic Association, vol. 102(2), pages 994-1028, April.
    17. Alvaro Cuervo-Cazurra, 2006. "Who cares about corruption?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(6), pages 807-822, November.
    18. Theodore H. Moran, 2011. "Foreign Direct Investment and Development: Launching a Second Generation of Policy Research: Avoiding the Mistakes of the First, Reevaluating Policies for Developed and Developing Countries," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6000, September.
    19. Amendolagine, Vito & Boly, Amadou & Coniglio, Nicola Daniele & Prota, Francesco & Seric, Adnan, 2013. "FDI and Local Linkages in Developing Countries: Evidence from Sub-Saharan Africa," World Development, Elsevier, vol. 50(C), pages 41-56.
    20. Webster, Allan & Piesse, Jenifer, 2018. "Are Foreign-Owned Firms More Likely to Pay Bribes than Domestic Ones? Evidence from Emerging Markets," World Development, Elsevier, vol. 101(C), pages 142-161.
    21. Sandholtz, Wayne & Gray, Mark M., 2003. "International Integration and National Corruption," International Organization, Cambridge University Press, vol. 57(4), pages 761-800, October.
    22. Boliang Zhu, 2017. "MNCs, Rents, and Corruption: Evidence from China," American Journal of Political Science, John Wiley & Sons, vol. 61(1), pages 84-99, January.
    23. Christopher J. Robertson & Andrew Watson, 2004. "Corruption and change: the impact of foreign direct investment," Strategic Management Journal, Wiley Blackwell, vol. 25(4), pages 385-396, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Donaubauer, Julian & Kannen, Peter & Steglich, Frauke, 2018. "Foreign direct investment & corruption in Sub-Saharan Africa: An empirical analysis at the local level," Kiel Working Papers 2118, Kiel Institute for the World Economy (IfW).
    2. Kouznetsov, Alex & Kim, Sarah & Wright, Chris, 2019. "An audit of received international business corruption literature for logic, consistency, completeness of coverage," Journal of International Management, Elsevier, vol. 25(4).
    3. Isaksson, Ann-Sofie & Kotsadam, Andreas, 2018. "Chinese aid and local corruption," Journal of Public Economics, Elsevier, vol. 159(C), pages 146-159.
    4. Cuervo-Cazurra, Alvaro, 2016. "Corruption in international business," Journal of World Business, Elsevier, vol. 51(1), pages 35-49.
    5. L. Pérez-Villar & A. Seric, 2015. "Multinationals in Sub-Saharan Africa: Domestic linkages and institutional distance," International Economics, CEPII research center, issue 142, pages 94-117.
    6. Bailey, Nicholas, 2018. "Exploring the relationship between institutional factors and FDI attractiveness: A meta-analytic review," International Business Review, Elsevier, vol. 27(1), pages 139-148.
    7. Hanousek, Jan & Shamshur, Anastasiya & Tresl, Jiri, 2019. "Firm efficiency, foreign ownership and CEO gender in corrupt environments," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 344-360.
    8. Jensen, Nathan M & Rahman, Aminur, 2011. "The silence of corruption : identifying underreporting of business corruption through randomized response techniques," Policy Research Working Paper Series 5696, The World Bank.
    9. Ivlevs Artjoms & Hinks Timothy, 2015. "Bribing Behaviour and Sample Selection: Evidence from Post-Socialist Countries and Western Europe," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(2), pages 139-167, April.
    10. Leyla Orudzheva & Manjula S. Salimath & Robert Pavur, 2020. "Vortex of Corruption: Longitudinal Analysis of Normative Pressures in Top Global Companies," Journal of Business Ethics, Springer, vol. 163(3), pages 529-551, May.
    11. Judge, William Q. & McNatt, D. Brian & Xu, Weichu, 2011. "The antecedents and effects of national corruption: A meta-analysis," Journal of World Business, Elsevier, vol. 46(1), pages 93-103, January.
    12. Gaygysyz Ashyrov & Jaan Masso, 2020. "Does corruption affect local and foreign-owned companies differently? Evidence from the BEEPS survey," Post-Communist Economies, Taylor & Francis Journals, vol. 32(3), pages 306-329, April.
    13. Axel Demenet & Hoang-Anh Ho & Sarah Morcillo, 2017. "Firm-level corruption: Unravelling sand from grease," WIDER Working Paper Series wp-2017-123, World Institute for Development Economic Research (UNU-WIDER).
    14. John Cruzatti C., 2019. "Free Trade Agreements and Local Economic Development: a Global Analysis with High-Resolution Data," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2019-04-ccr, Condorcet Center for political Economy.
    15. Jamie Collins & Klaus Uhlenbruck & Peter Rodriguez, 2009. "Why Firms Engage in Corruption: A Top Management Perspective," Journal of Business Ethics, Springer, vol. 87(1), pages 89-108, June.
    16. Hailin Chen & Friedrich Schneider & Qunli Sun, 2018. "Size, Determinants, and Consequences of Corruption in China's Provinces: The MIMIC Approach," CESifo Working Paper Series 7175, CESifo.
    17. Olken, Benjamin A., 2009. "Corruption perceptions vs. corruption reality," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 950-964, August.
    18. Gueorguiev, Dimitar & Malesky, Edmund, 2012. "Foreign investment and bribery: A firm-level analysis of corruption in Vietnam," Journal of Asian Economics, Elsevier, vol. 23(2), pages 111-129.
    19. Ann-Sofie Isaksson & Andreas Kotsadam, 2020. "Chinese Aid to Africa: Distinguishing Features and Local Effects," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(02), pages 27-31, July.
    20. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2014. "When does FDI have positive spillovers? Evidence from 17 transition market economies," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 954-969.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:kcgwps:16. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.kcg-kiel.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: http://www.kcg-kiel.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.