Corruption level and uncertainty, FDI and domestic investment

Jan Hanousek, Anastasiya Shamshur, Jan Svejnar and Jiri Tresl ()
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Jiri Tresl: University of Mannheim

Journal of International Business Studies, 2021, vol. 52, issue 9, No 4, 1750-1774

Abstract: Abstract Based on real options theory and institutional factors, we develop a theoretical framework for investment in the presence of corruption and use a sample of private firms in 13 European countries over 2001–2013 to carry out the first large-scale analysis of the impact of the level of corruption and uncertainty about corruption on post-entry investment of MNE subsidiaries. We employ several waves of managerial surveys (the Business Environment and Enterprise Performance Survey; BEEPS) to construct local- rather than merely country-level measures of corruption level and uncertainty. In combination with a large European firm-level database (Amadeus), we show that corruption uncertainty and corruption level do not have an effect on the investment of MNE subsidiaries. We next carry out the analysis on the sample of domestic firms and find a negative investment effect that is driven primarily by corruption uncertainty rather than corruption level. We also show that investment of domestic firms that are similar (matched) to MNE subsidiaries is unaffected directly by corruption, but is affected by uncertainties related to finances and judiciary. Our results are robust to controlling for various types of uncertainty, and they provide new insights into the effects of corruption on investment.

Keywords: corruption; uncertainty; foreign direct investment (FDI); central and eastern Europe; multinational enterprises (MNEs); real option theory (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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DOI: 10.1057/s41267-021-00447-w

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