Leveling the Playing Field for Everyone? Large-Scale Anti-Corruption Campaign and Foreign Direct Investment, with Evidence from China

56 Pages Posted: 29 May 2024

See all articles by Xiangyu Song

Xiangyu Song

Washington University in St. Louis

Date Written: May 25, 2024

Abstract

Anti-corruption efforts in authoritarian regimes are often seen as insincere charades or tools used for intra-elite struggles and factional purges. This paper advances an alternative view that considers their substantial effects. I argue that authoritarian anti-corruption efforts can have positive effects on foreign direct investment (FDI) by disciplining officials and improving the environment for foreign investors. I substantiate this claim by examining how China's anti-corruption efforts and in particular, the ongoing large-scale anti-corruption campaign launched by Xi Jinping influence FDI inflow to China. Theoretically building a formal model and empirically using an original province-origin-level panel dataset for the period from 2008 through 2019, along with two-way fixed effects models and a difference-in-differences strategy, I show that anti-corruption efforts are conducive to FDI inflow to China and such positive effects are more significant when the effort is in large-scale. Yet Xi's campaign has a non-differential effect on foreign investors from different origins. I propose three explanations for this non-differential effect: the sincerity of Xi's campaign, the effectiveness of the OECD Anti-Bribery Convention, and pre-campaign perfect price discrimination. These findings highlight the substantial effect and limitations of authoritarian anti-corruption efforts.

Keywords: anti-corruption, foreign direct investment, governance, authoritarian regime, China

Suggested Citation

Song, Xiangyu, Leveling the Playing Field for Everyone? Large-Scale Anti-Corruption Campaign and Foreign Direct Investment, with Evidence from China (May 25, 2024). Available at SSRN: https://ssrn.com/abstract=4841016 or http://dx.doi.org/10.2139/ssrn.4841016

Xiangyu Song (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

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