Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 82: Bureaucratic Corruption, MNEs and FDI

Tobias Dahlström () and Andreas Johnson
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Tobias Dahlström: Jönköping International Business School (JIBS), Jönköping
Andreas Johnson: Jönköping International Business School (JIBS), Jönköping

Abstract: This paper adds to the limited number of studies analysing the relationship between host country corruption and FDI inflows. A model describes the incentives foreign MNEs and host country bureaucrats have for engaging in corruption and shows how corruption increases the MNE costs of operations in the host country. The model predicts that the costs caused by corruption reduce FDI inflows. Regression analysis using panel data finds that host country corruption has a significant negative effect on FDI inflows to developing economies but not for developed economies.

Keywords: corruption; foreign direct investment; multinational enterprises

JEL-codes: D73; F21; F23

40 pages, February 13, 2007

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