The Impact of the Foreign Corrupt Practices Act on Competitiveness, Bribery, and Investment

25 Pages Posted: 18 Jul 2017 Last revised: 9 Jan 2020

See all articles by Maria Arbatskaya

Maria Arbatskaya

Hugo M. Mialon

Emory University - Department of Economics

Date Written: December 26, 2019

Abstract

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

Arbatskaya, Maria and Mialon, Hugo M., The Impact of the Foreign Corrupt Practices Act on Competitiveness, Bribery, and Investment (December 26, 2019). Available at SSRN: https://ssrn.com/abstract=3001262 or http://dx.doi.org/10.2139/ssrn.3001262

Hugo M. Mialon (Contact Author)

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

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