The Impact of the Foreign Corrupt Practices Act on Competitiveness, Bribery, and Investment
25 Pages Posted: 18 Jul 2017 Last revised: 9 Jan 2020
Date Written: December 26, 2019
The Foreign Corrupt Practices Act (FCPA) prohibits U.S.-related firms from making bribes abroad. We analyze the FCPA’s effects in a model of competition between a U.S. and foreign firm for contracts in a host country. If the FCPA only applies to the U.S. firm, it reduces that firm’s competitiveness and either increases bribery by the foreign firm or reduces overall investment. If the FCPA also applies to foreign firms, it reduces total bribery, and in host countries with high corruption levels, it increases total investment. The model suggests that the FCPA will deter bribery and stimulate investment while not disadvantaging U.S. firms if its enforcement is aimed at firms who engaged in bribery in highly corrupt countries and whose main competitors are also subject to the FCPA.
Keywords: Corruption, Bribery, Competitiveness, Investment, Absolute Advantage, International Cooperation
JEL Classification: D73, K42, H57, F53
Suggested Citation: Suggested Citation