Multinationals and Corruption: Business as Usual?

Abstract

This paper disentangles the effects of corruption on entry mode decision by carrying out an empirical analysis with rich, Firm-level data on the activities of Swedish MNCs around the globe in manufacturing sectors from 1987 to 1998. A number of propositions emerge from a simple theoretical framework. The panorama of the results from the empirical part supports most of these propositions: (i). Corruption has a direct negative impact on greenfield investments and a weak positive impact on M&As. (ii). There are complex, asymmetric, secondary effects of corruption on the mode of entry. (iii). International experience dampens the effect of corruption on the mode of entry.(iv). The results are robust to differences in measures of corruption.

Keywords: Corruption, Foreign direct investment, Multinational firms M&As, Green…field investments

JEL Classification: F23