National levels of corruption and foreign direct investment

Josef C. Brada, Zdenek Drabek, Jose Mendez, M. Fabricio Perez

Research output: Contribution to journalArticle

10 Scopus citations

Abstract

We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.

Original languageEnglish (US)
Pages (from-to)31-49
Number of pages19
JournalJournal of Comparative Economics
Volume47
Issue number1
DOIs
StatePublished - Mar 2019

Keywords

  • Competitive advantage
  • Corruption
  • Foreign direct investment
  • Multinational firms

ASJC Scopus subject areas

  • Economics and Econometrics

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