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Outward FDI from the USA and host country financial transparency

Bebonchu Atems () and John K Mullen

The Journal of International Trade & Economic Development, 2016, vol. 25, issue 8, 1122-1143

Abstract: Extant research has focused on the role of host country corruption as either an attractant or deterrent to foreign investment. These studies generally contend that corruption acts more like a ‘grabbing hand’ than as a ‘helping hand’. However, it is plausible that a significant component of foreign investment may be attracted to locales that offer opaque financial environments. Specifically, we hypothesize that money laundering opportunities may encourage illicit capital flows into certain jurisdictions. Using the USA as the ‘source’ country, we investigate the effect of corruption and money laundering opportunities on Foreign Direct Investment (FDI) flows. The empirical findings indicate that corruption deters foreign investment, while money laundering opportunities attract it. We also show that the effect of money laundering and corruption vary based on the host country's level of development. Our findings bolster the contention that FDI into certain host countries is motivated by a facilitation of illicit capital flows.

Date: 2016
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DOI: 10.1080/09638199.2016.1191526

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The Journal of International Trade & Economic Development is currently edited by Pasquale Sgro, David E.A. Giles and Charles van Marrewijk

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