Asymmetric influence of corruption distance on FDI

Birgit Burböck, Anita Macek, Edith Podhovnik and Christian Zirgoi

Journal of Financial Crime, 2018, vol. 25, issue 3, 845-858

Abstract: Purpose - The purpose of this paper is to measure the influence of corruption distance (CD) on foreign direct investment (FDI) with the characteristics of the value function from the Prospect Theory (PT) such as loss aversion and diminishing sensitivity. Design/methodology/approach - Data are derived from Transparency International and the Organisation for Economic Co-operation and Development (OECD) and tested on the countries China, Germany, Italy, Japan, Korea, Russia, Spain and the UK and are analysed with a natural log (LN) regression model. Findings - The findings indicate a negative asymmetric relationship for China, Germany, Korea, Spain and Russia. This means that negative performance on CD will not have greater impact on FDI outflows than positive performance on CD in the same country. Loss aversion, as well as diminishing sensitivity, as suggested by the PT, cannot be supported with the empirical results. Originality/value - Its originality lies in contributing and extending knowledge on CD on FDI in several ways. First, it analyses the data of emerging and industrialized countries, namely, Russia, China, Germany, Italy, Japan, Korea, Spain and the UK. Second, a potential asymmetric impact is explained by the characteristics of the hypothetical value function of the PT. Third, it seeks empirical evidence by applying an econometric model developed to analyse the variables CD and FDI.

Keywords: Foreign direct investment; Prospect theory; Corruption distance (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfcpps:jfc-09-2017-0078

DOI: 10.1108/JFC-09-2017-0078

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