Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 18/2012: Corruption and competition for resources.

Kjetil Bjorvatn () and Tina Søreide ()
Additional contact information
Kjetil Bjorvatn: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Tina Søreide: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: CMI (Christian Michelsen Institute), Bergen, Norway

Abstract: An increasing share of world FDI is carried out by multinationals from developing countries. These investors may have objectives and constraints that di¤er from their developed country counterparts. In this paper we focus on differences in attitudes to corruption, and how these may shape the competition for the right to extract resources in a developing country context. We show how di¤erences in the investors’ level of technology and differences in the host country government's trade-o¤ between bribes and taxes determine who wins the competition for the resource and the winning price. We …nd that the entry of a corrupt investor may induce the honest investor to offer bribes instead of taxes. Surprisingly, however, our analysis also demonstrates that under some conditions, the entry of a corrupt investor may in fact induce the honest investor to increase its tax payments.

Keywords: Corruption; FDI; auction; natural resources.

JEL-codes: K20; K40; O10

17 pages, September 14, 2012

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