The Effectiveness of Laws against Bribery Abroad

Journal of International Business Studies, 2008

20 Pages Posted: 7 Dec 2007

See all articles by Alvaro Cuervo-Cazurra

Alvaro Cuervo-Cazurra

Northeastern University - Department of International Business and Strategy

Abstract

I analyze the effectiveness of laws against bribery abroad in inducing foreign investors to reduce their investment in corrupt countries. The laws are designed to reduce the supply of bribes by foreign investors by increasing the costs of bribing abroad. Such increase in costs will make foreign investors more sensitive to corruption and induce them to reduce their investments in corrupt countries. However, I argue that these laws need to be implemented and coordinated in multiple countries to become effective. Otherwise, investors in a country will have incentives to bypass them when competitors from other countries are not bound by similar legal constrains. The empirical analysis shows that investors from countries that implemented the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transaction of 1997 reduced their investments in corrupt countries. Investors from the US, which were bound by the Foreign Corrupt Practices Act of 1977, also reduced investments in corrupt countries, but only after the OECD Anti-Bribery Convention was in place.

Keywords: corruption, foreign direct investment, law, institutions

JEL Classification: F21, F23, K42

Suggested Citation

Cuervo-Cazurra, Alvaro, The Effectiveness of Laws against Bribery Abroad. Journal of International Business Studies, 2008. Available at SSRN: https://ssrn.com/abstract=1059001

Alvaro Cuervo-Cazurra (Contact Author)

Northeastern University - Department of International Business and Strategy ( email )

D'Amore-McKim School of Business
313 Hayden Hall, 360 Huntington Avenue
Boston, MA 02115
United States
16173736568 (Phone)
16173738628 (Fax)

HOME PAGE: http://cuervo-cazurra.com

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