National levels of corruption and foreign direct investment

Josef Brada, Zdenek Drabek, Jose Mendez () and M. Fabricio Perez ()

Journal of Comparative Economics, 2019, vol. 47, issue 1, 31-49

Abstract: We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.

Keywords: Corruption; Foreign direct investment; Competitive advantage; Multinational firms (search for similar items in EconPapers)
JEL-codes: D21 D22 F21 F23 K42 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:47:y:2019:i:1:p:31-49

DOI: 10.1016/j.jce.2018.10.005

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