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Are Foreign-Owned Firms More Likely to Pay Bribes than Domestic Ones? Evidence from Emerging Markets

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  • Webster, Allan
  • Piesse, Jenifer

Abstract

An extensive literature exists on the adverse effects of corruption on inward FDI and the impact this may have on economic development but the reverse causality has not been fully explored. Legislation in the US and the EU prohibits firms from engaging in corrupt practices in foreign countries and this suggests that foreign-owned firms might be less likely to pay bribes. However, such legislation may be ineffective because foreign firms have to adapt to local market conditions or risk being uncompetitive. Using firm-level data for 41 emerging countries, a probit model estimates the probability that a firm pays bribes. To allow for possible endogeneity this probit analysis is repeated with an instrument to proxy for endogenous foreign ownership. Then, a propensity score matching technique tests for differences in the propensity to pay bribes by domestic and foreign firms. The paper finds no difference in the behavior of foreign-owned and domestic firms with respect to corrupt practices. Results are robust to different levels of foreign ownership and support the view that foreign-owned firms adapt to local practices and are neither more nor less likely to pay bribes than comparable domestic firms. The paper finds that other variables including bureaucracy, government contracts, and perceived difficulties with civil society (legal and political) do have statistically significant effects on increasing bribery and that some others, such as per capita GDP, tend to reduce bribery. The study concludes that there is no evidence that foreign ownership, after investment has occurred, tends to reduce bribery but it does support the view that foreign-owned firms adopt local behavioral norms.

Suggested Citation

  • Webster, Allan & Piesse, Jenifer, 2018. "Are Foreign-Owned Firms More Likely to Pay Bribes than Domestic Ones? Evidence from Emerging Markets," World Development, Elsevier, vol. 101(C), pages 142-161.
  • Handle: RePEc:eee:wdevel:v:101:y:2018:i:c:p:142-161
    DOI: 10.1016/j.worlddev.2017.08.007
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    Citations

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    Cited by:

    1. Okara, Assi, 2023. "Does foreign direct investment promote political stability? Evidence from developing economies," Economic Modelling, Elsevier, vol. 123(C).
    2. Dutta, Nabamita & Kar, Saibal, 2022. "Lockdown and Rural Joblessness in India: Gender Inequality in Employment?," IZA Discussion Papers 15270, Institute of Labor Economics (IZA).
    3. Gaygysyz Ashyrov & Jaan Masso, 2020. "Does corruption affect local and foreign-owned companies differently? Evidence from the BEEPS survey," Post-Communist Economies, Taylor & Francis Journals, vol. 32(3), pages 306-329, April.
    4. Olayinka Oyekola & Martha A. Omolo & Olapeju C. Ogunmokun, 2023. "Are majority-female-owned firms more susceptible to bribery solicitations?," Discussion Papers 2311, University of Exeter, Department of Economics.
    5. Julian Donaubauer & Peter Kannen & Frauke Steglich, 2022. "Foreign Direct Investment & Petty Corruption in Sub-Saharan Africa: An Empirical Analysis at the Local Level," Journal of Development Studies, Taylor & Francis Journals, vol. 58(1), pages 76-95, January.
    6. Assi Okara, 2022. "Building Stronger Economic Institutions in Developing Countries, the Role of FDI," Working Papers hal-03617915, HAL.
    7. Assi Okara, 2022. "Building Stronger Economic Institutions in Developing Countries, the Role of FDI," CERDI Working papers hal-03617915, HAL.
    8. Dutta, Nabamita & Kar, Saibal & Ray, Shaswata, 2022. "Human Capital and Self-Employment in India: An Empirical Analysis for Different Cohorts," IZA Discussion Papers 15825, Institute of Labor Economics (IZA).
    9. Firth, John, 2023. "When do anti-bribery laws affect international trade?," World Development, Elsevier, vol. 169(C).
    10. Assi Okara, 2022. "Does Foreign Direct Investment Promote Political Stability ? Evidence from Developing Economies," CERDI Working papers hal-03617085, HAL.
    11. Das, Khanindra Ch. & Mahalik, Mantu Kumar, 2020. "International subsidiary performance of Indian multinationals in the extractive sector: The role of institutional quality, corruption and investment regime," Resources Policy, Elsevier, vol. 67(C).
    12. Dutta, Nabamita & Kar, Saibal & Stivers, Adam, 2023. "Does Economic Freedom Moderate Perceived Corruption for Firms in India?," IZA Discussion Papers 16484, Institute of Labor Economics (IZA).
    13. Seyedmasood Dastan & John Gibson, 2023. "The effect of corruption on firm investment in the presence of missing data," American Journal of Economics and Sociology, Wiley Blackwell, vol. 82(1), pages 79-93, January.
    14. Khorana, Sangeeta & Webster, Allan, 2023. "Too few women at the top of firms: Foreign ownership, gender segregation and cultural causes," GLO Discussion Paper Series 1276, Global Labor Organization (GLO).
    15. Nabamita Dutta & Lisa Giddings & Russell S. Sobel, 2022. "Does Trust Always Help Gender Role Attitudes? The Role of Individualism and Collectivism," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 159(1), pages 379-408, January.

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