Corruption and FDI : the relationship between host state corruption and investor state willingness to bribe
Sima-Eichler, Peter John.
Thesis (M.P.P.)--Georgetown University, 2009.; Includes bibliographical references. This paper examines the relationship between host state corruption and bribe paying regulations in investor states. In the foreign direct investment literature, one assumption is that as host state corruption decreases, foreign direct investment increases. The standard mechanism is the reduced level of uncertainty; a state with a high level of corruption has variable fixed business costs because investors will have to pay bribes at the leisure of government bureaucrats. This paper argues that investor states are affected by changes in host state corruption in different ways. Specifically, investor states with strict anti-bribery regulations will be much more sensitive to changes in host state corruption. One reason for this effect is that it is difficult for corporations from states with strong anti-bribery regulations to compete with corporations from states with loose anti-bribery regulations in corrupt environments. Thus, if a host state decreases its level of corruption, investor states with strong anti-bribery regulations will be able to compete more effectively for contracts, increasing their interest and potential for investment. I test my predictions using data from the World Bank (control variables like GDP, inflation rate, etc.), Source OECD (FDI flows), the Center for Economic Policy Research (distance between capital cities), the OECD (Convention on Combating Bribery of Foreign Public Officials in International Business Transactions), and Transparency International (Bribe Payers Index, Perceptions of Corruption Index). The results suggest that this effect is correct using the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in a fixed effects model. The results are also significant using the Bribe Payers Index as a proxy in a gravity model. Still, the results are not robust, and more work needs to be done. From a policy perspective, this paper is even more evidence that countries benefit from corruption reform.
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