Greasing the Wheels of Commerce? Corruption and Foreign Investment

The Journal of Politics 81(4): 1311-27.

46 Pages Posted: 7 Aug 2017 Last revised: 16 Jan 2020

See all articles by Boliang Zhu

Boliang Zhu

Pennsylvania State University - Department of Political Science

Weiyi Shi

University of California, San Diego - GPS (nee IR/PS); University of California, San Diego (UCSD) - 21st Century China Center

Date Written: August 1, 2017

Abstract

There are considerable scholarly debates regarding the real consequences of corruption. Recent studies have argued that predictable corruption, in which bribers are guaranteed the delivery of government services, is less distortionary and more efficiency-enhancing than arbitrary corruption in which officials engage in simple plunder. Yet, the empirical evidence is mixed. Leveraging a vignette experiment embedded in an original firm survey in China, we find that overseas investors always consider corruption detrimental. There is some evidence that high-productivity and fixed-asset intensive investors might view predictable corruption more favorably than arbitrary corruption. Additionally, we find that compared to arbitrary corruption, predictable corruption is not associated with a significantly higher probability of market entry, but it increases the likelihood of majority ownership. Overall, the results provide little evidence that corruption "greases the wheels of commerce" even in a most likely case, and suggest that the perceived benefits of predictable corruption are limited.

Keywords: Corruption, Uncertainty, Foreign Investment, Entry Mode, Survey Experiment, China

Suggested Citation

Zhu, Boliang and Shi, Weiyi, Greasing the Wheels of Commerce? Corruption and Foreign Investment (August 1, 2017). The Journal of Politics 81(4): 1311-27. . Available at SSRN: https://ssrn.com/abstract=3014400 or http://dx.doi.org/10.2139/ssrn.3014400

Boliang Zhu (Contact Author)

Pennsylvania State University - Department of Political Science ( email )

University Park, State College, PA 16801
United States

Weiyi Shi

University of California, San Diego - GPS (nee IR/PS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

University of California, San Diego (UCSD) - 21st Century China Center ( email )

9500 Gilman Drive #0519
La Jolla, CA 92093-0519
United States

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