Between demand and supply: Bribery in international trade

Abstract

The use of kickbacks and illicit payments to win foreign sales is eroding fair trade and undermining good governance around the world. While often seen as discrete acts by unscrupulous businesses, bribery in international trade is better seen as driven by push and pull forces larger than individual firms. Two hypotheses on the dynamics of transnational bribery are formulated and tested in this study. The demand-pull hypothesis views multinational corporations as victims of corruption in host countries and predicts a positive relationship between corruption in host countries and bribery by guest businesses. The supply-push hypothesis treats multinationals as proactive parties and proposes a positive relationship between pro-bribery conditions in exporting countries and the inclination of their multinationals to foreign bribery. Analysis of cross-national data yielded no support for the demand-pull hypothesis, but strong backing for the supply-push hypothesis. This finding validates the potential of effective bribery reduction through supply-side controls.