Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms
IUI Working Paper No. 641
47 Pages Posted: 19 Jul 2005
Date Written: May 2005
We examine the effect of corruption on foreign direct investments. Our model shows that corruption may have different effects on investments aimed at selling to a local market, in comparison to investments aimed at selling from the corrupt market. Using Swedish firm-level data, we find that affiliate local sales decrease with corruption, while affiliate exports increase. Finally, corruption has a negative effect on the probability that a foreign firm will invest in a country. These results are consistent with theory when bribing reduces production costs and local firms have an advantage in bribing vis a vis foreign firms.
Keywords: FDI, corruption, multinational firm
JEL Classification: D73, F21, F23
Suggested Citation: Suggested Citation