Who Cares about Corruption?

Abstract:     
This paper examines the impact of corruption on foreign direct investment (FDI). It argues that corruption results not only in a reduction in FDI, but also in a change in the composition of country of origin of FDI. It presents two key findings. First, corruption results in relatively lower FDI from countries that have signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This suggests that laws against bribery abroad may act as a deterrent against engaging in corruption in foreign countries. Second, corruption results in relatively higher FDI from countries with high levels of corruption. This suggests that investors that have been exposed to bribery at home may not be deterred by corruption abroad and instead seek countries where corruption is prevalent.

Keywords: corruption, foreign direct investment, international management

JEL Classifications: F21, F23, K42

Accepted Paper Series