Corruption and Cross-Border Investment in Emerging Markets: Firm-Level Evidence

Beata Javorcik and Shang-Jin Wei

No 62009, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper studies the impact of corruption in emerging markets on the mode of entry and volume of inward foreign direct investment using a unique firm-level data set. It examines two effects of corruption simultaneously: a reduction in the volume of foreign investment and a shift in the ownership structure. Corruption makes local bureaucracy less transparent and hence acts as a tax on foreign investors. Moreover, corruption affects the decision to take on a local partner. On the one hand, corruption increases the value of using a local partner to cut through the bureaucratic maze. On the other hand, corruption decreases the effective protection of investor's intangible assets and lowers the probability that disputes between foreign and domestic partners will be adjudicated fairly, which reduces the value of having a local partner. The importance of protecting intangible assets increases with investor's technological sophistication, which tilts the preference away from joint ventures in a corrupt country. Empirical evidence shows that corruption reduces inward FDI and shifts the ownership structure towards joint ventures. Technologically more advanced firms are found to be less likely to engage in joint ventures.

Keywords: Corruption; Developing Countries; Multinational Firms (search for similar items in EconPapers)
JEL-codes: F23 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-02
New Economics Papers: this item is included in nep-dev and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (168)

Downloads: (external link)
http://www.hkimr.org/uploads/publication/142/ub_full_0_2_200_wp-no-06_2009.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.hkimr.org/uploads/publication/142/ub_full_0_2_200_wp-no-06_2009.pdf [301 Moved Permanently]--> http://www.aof.org.hk/research/HKIMR/uploads/publication/142/ub_full_0_2_200_wp-no-06_2009.pdf [301 Moved Permanently]--> https://www.aof.org.hk/research/HKIMR/uploads/publication/142/ub_full_0_2_200_wp-no-06_2009.pdf)

Related works:
Journal Article: Corruption and cross-border investment in emerging markets: Firm-level evidence (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:062009

Access Statistics for this paper

More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().