Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms

54 Pages Posted: 26 Jan 2011

See all articles by Katariina Hakkala

Katariina Hakkala

Research Institute of Industrial Economics (IFN)

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Helena Svaleryd

Uppsala University

Multiple version iconThere are 2 versions of this paper

Date Written: 2007

Abstract

We examine the effect of corruption on foreign direct investments (FDI). Starting out from the theory of FDI, we show that corruption can have different effects on horizontal investments, which are primarily aimed at sales to the local market, compared to vertical investments, which are made to access lower factor costs for export sales. Using Swedish firm-level data, we find that corruption reduces the probability that a firm will invest in a country. Moreover, when studying the different types of investments, we find that horizontal investments, measured by affiliate local sales, are to a larger extent than vertical investments deterred by corruption. We are also able to establish a causal effect of corruption on FDI

Keywords: FDI, corruption, multinational firm

JEL Classification: D73, F21, F23

Suggested Citation

Hakkala, Katariina and Norbäck, Pehr-Johan and Svaleryd, Helena, Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms (2007). Review of Economics and Statistics, Vol. 90, No. 4, 2008, IFN Working Paper No. 641/2005, Available at SSRN: https://ssrn.com/abstract=1369120

Katariina Hakkala

Research Institute of Industrial Economics (IFN) ( email )

Grevgatan 34, 2nd floor
S-114 85 Stockholm, SE-102 15
Sweden

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Helena Svaleryd (Contact Author)

Uppsala University ( email )

P.O. Box 513
Uppsala, 75120
Sweden

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