IDEAS home Printed from https://ideas.repec.org/p/zbw/esprep/142738.html
   My bibliography  Save this paper

Corruption and Foreign Direct Investment. What kind of relationship is there?

Author

Listed:
  • Caetano, José
  • Caleiro, António

Abstract

Globalization and technological innovations create investment opportunities for firms worldwide. In fact, while firms pursue foreign direct investment (FDI) opportunities on a global basis, countries compete to attract these flows. Investment decisions by firms depend on complex and distinct factors. In particular, in the case of foreign investment one of these factors relates to the perception that investors have about the level of risk and/or corruption (or transparency) that characterises countries. Recent studies suggest that corruption negatively impacts on FDI and may act as a disincentive to investment. By using information for 97 countries, concerning inward FDI performance and perceived level of corruption, this paper intends to analyse how corruption influences on the FDI. Given that a certain level of perceived corruption can, in fact, be subject to different subjective evaluations by investors, the paper uses a fuzzy logic approach in order to determine conceivable clusters in the FDI-corruption space. The use of fuzzy clustering techniques reveals the existence of two well-defined clusters: one is formed by high-level corruption countries, where, indeed, corruption is negatively correlated, in a significant way, with FDI; the other is formed by low-level corruption countries, where the influence of corruption on FDI is not so evident.

Suggested Citation

  • Caetano, José & Caleiro, António, 2005. "Corruption and Foreign Direct Investment. What kind of relationship is there?," EconStor Preprints 142738, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:142738
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/142738/1/wp_2005_18.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Juan-José Ganuza & Marco Celentani & José-Luis Peydró, 2003. "Combating Corruption in International Business Transactions," Working Papers 106, Barcelona School of Economics.
    2. Kathryn Gordon & Maiko Miyake, 2000. "Business Approaches to Combating Bribery: A Study of Codes of Conduct," OECD Working Papers on International Investment 2000/1, OECD Publishing.
    3. Drabek, Zdenek & Payne, Warren, 2002. "The Impact of Transparency on Foreign Direct Investment," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 777-810.
    4. Carlo Bagnoli & Halbert C. Smith, 1998. "The Theory of Fuzzy Logic and its Application to Real Estate Valuation," Journal of Real Estate Research, American Real Estate Society, vol. 16(2), pages 169-200.
    5. James E. West & Bruce Linster, 2003. "The Evolution of Fuzzy Rules as Strategies in Two-Player Games," Southern Economic Journal, John Wiley & Sons, vol. 69(3), pages 705-717, January.
    6. António Caleiro, 2005. "How is Confidence Related to Unemployment in Europe? A fuzzy logic answer," Economics Working Papers 1_2005, University of Évora, Department of Economics (Portugal).
    7. Lee, Jeong-Yeon & Mansfield, Edwin, 1996. "Intellectual Property Protection and U.S. Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 181-186, May.
    8. John H Dunning, 1995. "Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(3), pages 461-491, September.
    9. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
    10. Smith, Pamela J., 2001. "How do foreign patent rights affect U.S. exports, affiliate sales, and licenses?," Journal of International Economics, Elsevier, vol. 55(2), pages 411-439, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Heyman Fredrik & Tingvall Patrik Gustavsson, 2015. "The Dynamics of Offshoring and Institutions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(4), pages 1975-2016, October.
    2. Manamba EPAPHRA & John MASSAWE, 2017. "The Effect of Corruption on Foreign Direct Investment: A Panel Data Study," Turkish Economic Review, KSP Journals, vol. 4(1), pages 19-54, March.
    3. Maxime Delabarre, 2021. "The Economic and Institutional Determinants of Foreign Direct Investments," Working Papers hal-03334549, HAL.
    4. Karpaty, Patrik & Gustavsson Tingvall, Patrik, 2011. "Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?," Working Papers 2011:2, Örebro University, School of Business, revised 28 May 2012.
    5. Tomáš Evan & Ilya Bolotov, 2014. "The Weak Relation between Foreign Direct Investment and Corruption: A Theoretical and Econometric Study," Prague Economic Papers, Prague University of Economics and Business, vol. 2014(4), pages 474-492.
    6. Rahim M. Quazi, 2014. "Corruption and Foreign Direct Investment in East Asia and South Asia: An Econometric Study," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 231-242.
    7. Tingvall, Patrik, 2011. "Dynamic Effects of Corruption on Offshoring," Ratio Working Papers 182, The Ratio Institute.
    8. Caetano, José & Caleiro, António, 2009. "Economic Freedom and Foreign Direct Investment -- How different are the MENA countries from the EU?," EconStor Preprints 144148, ZBW - Leibniz Information Centre for Economics.
    9. Bitzenis, Aristidis & Tsitouras, Antonis & Vlachos, Vasileios A., 2009. "Decisive FDI obstacles as an explanatory reason for limited FDI inflows in an EMU member state: The case of Greece," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 691-704, August.
    10. Zagler, Martin, 2023. "Foreign direct investment, legal uncertainty and corporate income taxation," International Economics, Elsevier, vol. 173(C), pages 19-28.
    11. Sotirios Bellos & Turan Subasat, 2012. "Corruption And Foreign Direct Investment: A Panel Gravity Model Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 64(4), pages 565-574, October.
    12. Maxime Delabarre, 2021. "The Economic and Institutional Determinants of Foreign Direct Investments," SciencePo Working papers Main hal-03334549, HAL.
    13. Sotirios Bellos & Turan Subasat, 2012. "Governance and foreign direct investment: a panel gravity model approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(3), pages 303-328, April.
    14. Patrik Karpaty & Patrik Tingvall, 2015. "Service Offshoring and Corruption: Do Firms Escape Corrupt Countries?," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 363-381, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Huiying & Yang, Xiaohui, 2016. "Trade-related aspects of intellectual property rights agreements and the upsurge in foreign direct investment in developing countries," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 91-99.
    2. Caetano, José & Caleiro, António, 2009. "Economic Freedom and Foreign Direct Investment -- How different are the MENA countries from the EU?," EconStor Preprints 144148, ZBW - Leibniz Information Centre for Economics.
    3. Sumon Kumar Bhaumik & Catherine Yap Co, 2009. "Chinese state???s economic cooperation related investment: An investigation of its direction and some implications for outward investment," William Davidson Institute Working Papers Series wp966, William Davidson Institute at the University of Michigan.
    4. Yoo, Dasun & Reimann, Felix, 2017. "Internationalization of Developing Country Firms into Developed Countries: The Role of Host Country Knowledge-Based Assets and IPR Protection in FDI Location Choice," Journal of International Management, Elsevier, vol. 23(3), pages 242-254.
    5. Elif Bascavusoglu & Maria Pluvia Zuniga, 2005. "The effects of intellectual property protection on international knowledge contracting," Cahiers de la Maison des Sciences Economiques bla05009, Université Panthéon-Sorbonne (Paris 1).
    6. Reinhold Decker & Xuemin Zhao, 2004. "SMEs' Choice of Foreign Market Entry Mode: A Normative Approach," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(3), pages 181-200, December.
    7. Nagano, Mamoru, 2013. "Similarities and differences among cross-border M&A and greenfield FDI determinants: Evidence from Asia and Oceania," Emerging Markets Review, Elsevier, vol. 16(C), pages 100-118.
    8. Chris Wagner, 2020. "Deducing a state-of-the-art presentation of the Eclectic Paradigm from four decades of development: a systematic literature review," Management Review Quarterly, Springer, vol. 70(1), pages 51-96, February.
    9. Jones, Chris & Temouri, Yama, 2016. "The determinants of tax haven FDI," Journal of World Business, Elsevier, vol. 51(2), pages 237-250.
    10. Anja, Breitwieser & Neil, Foster, 2012. "Intellectual property rights, innovation and technology transfer: a survey," MPRA Paper 36094, University Library of Munich, Germany.
    11. António Caleiro, 2005. "How is Confidence Related to Unemployment in Europe? A fuzzy logic answer," Economics Working Papers 1_2005, University of Évora, Department of Economics (Portugal).
    12. Sunil Kanwar, 2013. "Innovation, Productivity and IPRs," Working papers 230, Centre for Development Economics, Delhi School of Economics.
    13. Kang Park, 2003. "Patterns and strategies of Foreign Direct Investment: the case of Japanese firms," Applied Economics, Taylor & Francis Journals, vol. 35(16), pages 1739-1746.
    14. McWilliam, Sarah E. & Kim, Jung Kwan & Mudambi, Ram & Nielsen, Bo Bernhard, 2020. "Global value chain governance: Intersections with international business," Journal of World Business, Elsevier, vol. 55(4).
    15. Neil M. Kay, 2005. "Penrose and the growth of multinational firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 99-112.
    16. Celal Bayari, 2016. "Economic Geography of the Australian Mining Industry," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 107(5), pages 552-566, December.
    17. Peggy A. Cloninger & Benjamin Oviatt, 2007. "Service Content and the Internationalization of Young Ventures: An Empirical Test," Entrepreneurship Theory and Practice, , vol. 31(2), pages 233-256, March.
    18. Paul Hong & Stephen K. Callaway & Soon W. Hong, 2016. "Open network innovation in the age of complexity: case for small and medium enterprises," International Journal of Business Innovation and Research, Inderscience Enterprises Ltd, vol. 10(1), pages 65-86.
    19. Bartels, Frank L. & Napolitano, Francesco & Tissi, Nicola E., 2014. "FDI in Sub-Saharan Africa: A longitudinal perspective on location-specific factors (2003–2010)," International Business Review, Elsevier, vol. 23(3), pages 516-529.
    20. Bonaglia, Federico & Goldstein, Andrea & Mathews, John, 2006. "Accelerated Internationalisation by Emerging Multinationals: the Case of White Goods Sector," MPRA Paper 1485, University Library of Munich, Germany.

    More about this item

    Keywords

    Corruption; Foreign Domestic Investment; Fuzzy Clustering;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:esprep:142738. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zbwkide.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.