Better the devil you don't know: Types of corruption and FDI in transition economies

Alvaro Cuervo-Cazurra ()

Journal of International Management, 2008, vol. 14, issue 1, 12-27

Abstract: Corruption has a negative impact on foreign direct investment (FDI). However, transition economies show high levels of corruption and also high levels of FDI. I argue that it is not the level but rather the type of corruption that affects FDI in transition economies. Pervasive corruption, or corruption that is widely present, acts as a deterrent to FDI because it increases the known costs of investing, while arbitrary corruption, or corruption that is uncertain, does not have such a deterring influence because it becomes part of the uncertainty of operating in transition economies. In transition economies, investors prefer to deal with an unknown evil - arbitrary corruption - rather than a known one - pervasive corruption.

Keywords: F21; F23; D73; K42; P37; Corruption; Foreign; direct; investment; Institutions; Transition; economies (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (61)

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