Corruption Distance and Foreign Direct Investment

Xingwang Qian and Jesus Sandoval-Hernandez

Emerging Markets Finance and Trade, 2016, vol. 52, issue 2, 400-419

Abstract: We study the effects of “corruption distance,” defined as the difference in corruption levels between country pairs on bilateral foreign direct investment (FDI). Using a “gravity” model and the Heckman (1979) two-stage framework on a data set of forty-five countries from 1997 to 2007, we find that corruption distance adversely influences both the likelihood of FDI and the volume of FDI. A novel finding in this study is that we identify the asymmetric effect of corruption distance and find that the positive corruption distance, defined as the corruption distance from a high corruption source to a low corruption host country, is the prominent one that affects the behavior of bilateral FDI.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:52:y:2016:i:2:p:400-419

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DOI: 10.1080/1540496X.2015.1047301

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