Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

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

Katariina Hakkala (), Pehr-Johan Norbäck () and Helena Svaleryd ()
Additional contact information
Katariina Hakkala: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Pehr-Johan Norbäck: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Helena Svaleryd: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

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 à vis foreign firms.

Keywords: FDI; Corruption; Multinational Firm

JEL-codes: D73; F21; F23

46 pages, First version: May 12, 2005. Revised: August 20, 2007.

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