Foreign Direct Investment, Corruption, and Institutional Reforms

Rafael Salvador Espinosa Ramirez ()

Panoeconomicus, 2022, vol. 69, issue 1, 17-34

Abstract: Corruption impacts the competitive conditions among firms and the flow of foreign investment. Institutional reforms made for fighting against corruption are sometimes useless. We develop a model in which a corrupted government tries to set an optimal institutional level taking into account the cost of this policy on foreign investment, the benefit of a corrupted domestic firm and the benefit of local citizens. A political contribution is made by a corrupted lobby group in order to benefit from a lower institutional level. Our results suggest that the optimal institutional level depends on the degree of efficiency of firms and the level of corruption of the host government. Key words: Corruption, Lobbying, Institutional reforms, Foreign direct investment. JEL: F21, F30, K42.

Keywords: Corruption; Lobbying; Institutional reforms; Foreign direct investment (search for similar items in EconPapers)
Date: 2022
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