Abstract
We study the effects of “corruption distance,” defined as the difference in corruption levels between country pairs, on bilateral foreign direct investment (FDI). Using a “gravity” model and the Heckman (1979) two-stage framework on a data set of 45 countries from 1997 to 2007, we find that corruption distance adversely affects the volume of FDI to be invested in a host country. However, we do not find statistical evidence that corruption distance influences FDI’s decision on whether to invest or not. The volume reduction effect of corruption distance varies across different source-host-country-pair samples. Further, we identify the asymmetric effect of corruption distance and find that the positive corruption distance, defined as the corruption distance from a high corruption source to a low corruption host country, is the prominent one that affects the behavior of bilateral FDI. Again, the degree of such asymmetric effect varies across different country-pair samples.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
