Working Paper No. 641

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

Publicerad: 11 maj 2005; revised 2007 Antal sidor: 45Nyckelord: FDI; Corruption; Multinational FirmJEL-koder: D73; F21; F23

Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms Katariina Hakkala, Pehr-Johan Norbäck och Helena Svaleryd


We examine the effect of corruption on foreign direct investments (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 to 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 to a larger extent than vertical investments deterred by corruption. We are also able to establish a causal effect of corruption on FDI.  

 Original version

 

Pehr-Johan Norbäck

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