Scandinavian Working Papers in Economics
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Research Institute of Industrial Economics (IFN) Working Paper Series

No 641:
Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms

Katariina Hakkala (), Pehr-Johan Norbäck () and Helena Svaleryd ()

Abstract: We examine the effect of corruption on foreign direct investments. Our model shows that corruption may have different effects on investments aimed at selling to a local market, in comparison to investments aimed at selling from the corrupt market. Using Swedish firm-level data, we find that affiliate local sales decrease with corruption, while affiliate exports increase. Finally, corruption has a negative effect on the probability that a foreign firm will invest in a country. These results are consistent with theory when bribing reduces production costs and local firms have an advantage in bribing vis ā vis foreign firms.

Keywords: FDI; Corruption; Multinational Firm; (follow links to similar papers)

JEL-Codes: D73; F21; F23; (follow links to similar papers)

46 pages, May 12, 2005, Revised August 20, 2007

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This paper is published as:
Hakkala, Katariina, Pehr-Johan Norbäck and Helena Svaleryd, (2008), 'Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms', The Review of Economics & Statistics, Vol. 90, No. 4, pages 627-642

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