2006–2010

Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms

Reprint No. 2008:24

Author(s): Katariina Nilsson Hakkala, Pehr-Johan Norbäck and Helena SvalerydYear: 2008 Title: Review of Economics and Statistics Volume (No.): 90 (4) Pages: 627–642


We examine the effect of corruption on foreign direct investment (FDI). Starting out from the theory of FDI, we show that corruption can have different effects on horizontal investments, which are primarily aimed at sales to the local market, compared with vertical investments, which are made to access lower factor costs for export sales. Using Swedish firm-level data, we find that corruption reduces the probability that a firm will invest in a country. Moreover, when studying the different types of investments, we find that horizontal investments, measured by affiliate local sales, are deterred by corruption to a larger extent than are vertical investments. We are also able to establish a causal effect of corruption on FDI.


Reference:
Nilsson Hakkala, Katariina, Pehr-Johan Norbäck and Helena Svaleryd (2008), "Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms". Review of Economics and Statistics 90(4), 627–642.

Pehr-Johan Norbäck

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Ph: +46 8 665 4522
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pehr-johan.norback@if...

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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