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Bridging the Gap? Corruption, Knowledge and Foreign Ownership

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  • Nigel L. Driffield
  • Tomasz Mickiewicz
  • Sarmistha Pal
  • Yama Temouri

Abstract

We argue that in addition to host corruption per se, as accounted for by the existing literature, an explanation of inter-country variation in FDI needs to account for the distance between the host and home corruption, which we call relative corruption. We use a large matched home-host firm-level panel data-set for 1998-2006 from CEE transition countries. Year-specific selectivity corrected estimates suggest that, ceteris paribus, higher relative ‘grand’ corruption lowers foreign ownership as the returns to investment tends to be lower in more corrupt environment. However, after controlling for the selectivity bias, knowledge- intensive parent firms are found to hold controlling ownership, as the difficulty of successful joint venture looms large in more corrupt environment. Results are robust to alternative specifications.

Suggested Citation

  • Nigel L. Driffield & Tomasz Mickiewicz & Sarmistha Pal & Yama Temouri, 2010. "Bridging the Gap? Corruption, Knowledge and Foreign Ownership," CEDI Discussion Paper Series 10-01, Centre for Economic Development and Institutions(CEDI), Brunel University.
    • Handle: RePEc:edb:cedidp:10-01
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    Cited by:

    1. Karhunen, Päivi & Ledyaeva, Svetlana, 2012. "Corruption Distance, Anti-corruption Laws and International Ownership Strategies in Russia," Journal of International Management, Elsevier, vol. 18(2), pages 196-208.
    2. Driffield, Nigel L. & Mickiewicz, Tomasz & Temouri, Yama, 2013. "Institutional reforms, productivity and profitability: From rents to competition?," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 583-600.
    3. Anselm Komla Abots, 2015. "Foreign Ownership of Firms and Corruption in Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 647-655.

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