Corruption and the Composition of Foreign Direct Investment : Firm-Level Evidence

Smarzynska, Beata K. ; Wei, Shang-Jin

World Bank, Washington, DC

关键词: ADMINISTRATIVE EXPENDITURE;    AGGREGATING GOVERNANCE INDICATORS;    BRIBERY;    BUREAUCRACY;    CAPITAL CITIES;   

DOI  :  10.1596/1813-9450-2360
RP-ID  :  WPS2360

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

The authors study the impact ofcorruption in a host country on foreign investors'preference for a joint venture, or a wholly ownedsubsidiary. Their simple model highlights a basic tradeoffin using local partners. On the one hand, corruption makesthe local bureaucracy less transparent, and increases thevalue of using a local partner to cut through thebureaucratic maze. On the other hand, corruption decreasesthe effective protection of an investors' intangibleassets, and reduces the probability that disputes betweenforeign and domestic partners, will be adjudicated fairly,which reduces the value of having a local partner. As theinvestor's technological sophistication increases, sodoes the importance of protecting intangible assets, whichtilts the preference away from joint ventures in a corruptcountry. Empirical tests of this hypothesis on firm-leveldata show that corruption reduces inward foreign directinvestment, and shifts the ownership structure toward jointventures. Conditional on foreign direct investment takingplace, an increase in corruption from the level found inHungary to that found in Azerbaijan, decreases theprobability of a wholly owned subsidiary by 10 to 20percent. Technologically more advanced firms are less likelyto engage in joint ventures, however. The authors findsupport for the view that U.S. firms are more averse tojoint ventures in corrupt countries than other foreigninvestors - possibly because the U.S. Foreign corruptPractices Act, which stipulates penalties for executives ofU.S. companies whose employees, or local partners engage inpaying bribes. But although U.S. companies are more likelythan investors from other countries to retain full ownershipof firms in corrupt countries, they are not less likely thanfirms from other countries to undertake foreign directinvestment in those countries.