Corruption Distance Research Articles

Corruption distance discourages bilateral FDI … Unless you’re high: The moderating effect of direction

This study investigates the impact of corruption, corruption distance, and corruption direction on bilateral foreign direct investment (FDI) outflows using reporting OECD Global North and Global South countries. We first posit that corruption and the absolute difference in corruption levels across a pair of countries are negatively related to a host country's level of FDI. Then we investigate the moderating effect of direction when investing in a more corrupt host country. A PPML gravity model for a panel of 5733 different North and South country pairs over the years 1998–2018 indicates both the presence of corruption and a high corruption distance between country pairs has negative effects on FDI outflows, but investing in the direction of a more corrupt host country has a positive moderating effect. Our results contribute to expand and complement the theories on corruption in FDI.

A Bibliometric Analysis on the Impact of Corruption on Foreign Direct Investment Attractiveness

The purpose of this research is to investigate the asymmetric link between corruption and foreign direct investment (FDI). The article examines the literature to assess the impact of corruption on FDI attractiveness using bibliometric and content analysis based on 148 articles from Scopus database for a period of 24 years (1999–2022). The findings reveal that research on the theme has grown a lot in terms of publications. The geographical focus of the literature has been on developing economies as compared to developed economies. It has also been observed that majority of research contribution has been made by developed nations. The findings indicate that the impact of corruption on FDI differs on the basis of development level of economies. The foreign market attractiveness and corruption distance also influences the flow of foreign capital in bilateral trade. The study intends to contribute positively to the understanding of association of corruption with FDI, by analysing the existing literature, the most significant works, authors, journals and the emerging topics of concern on the theme.

Corruption distance and the equity-based foreign entry strategies of multinational enterprises in sub-Saharan Africa

Corruption distance and the equity-based foreign entry strategies of multinational enterprises in sub-Saharan Africa

How Corruption Distance Affects FDI Inflows in India?

As firms invest in foreign countries, they face additional costs of doing business in the form of liabilities of foreignness. The liabilities of foreignness are aggravated by the distance in the institutional environment of the home country in which the firms are embedded and the host country in which they invest. Within this context, the aim of this research paper is to examine if a specific form of institutional distance, that is, corruption distance, affects the quantum of inward foreign direct investment (FDI) in India, which is a large emerging market and an important receiver of global FDI flows. Using country-wise FDI inflows data from 2008 to 2020, the results of panel autoregressive distributed lag (ARDL) method reveal the presence of a long-run relationship between FDI inflows and corruption distance between India and the home country of the investor firm. The disequilibrium in the long-run relationship, if any, gets adjusted at the rate of 38.1% per year. The findings also suggest that an improvement in the control of corruption is expected to lead to greater FDI inflows in the country, thereby providing an important policy implication. To attract FDI and to fully realise its benefits which are essential for an emerging country like India, policymakers need to make concerted efforts to control the level of corruption.

Does corruption distance affect cross‐border acquisitions? Different tales from developed and emerging markets

AbstractUsing a large sample of cross‐border deals, we find an inverted U‐shaped relationship between corruption distance and cross‐border acquisition (CBA) volume. CBAs involving higher corruption distance show negative post‐acquisition performance. However, multinational enterprises (MNEs) with larger equity stakes deliver superior gains. We find that the ownership strategy varies with levels of corruption distance. MNEs mitigate adverse selection and moral hazard problems by acquiring targets from a related industry and targets with a foothold. We demonstrate that CBA activity and ownership strategy vary between developed and emerging economies and both ‘level’ and ‘direction’ of corruption distance are important in its effect on CBAs.

Seeds of Corruption? The Contingent Role of Ties to Politicians and Foreign Subsidiary Relations with Government‐Sponsored Financial Institutions

AbstractIn drawing from transaction cost economics and social network theories, this study examines the influence of corruption as a determinant of foreign subsidiary formal contracting practices with government‐sponsored financial institutions. We hypothesize that lower corruption distance (between parent home and host countries) and higher perceived corruption (in host country) are positively related, and mutually reinforcing, when considering a foreign subsidiary's propensity to formally contract with government‐sponsored financial institutions. We also suggest that these relationships strengthen with the intensification of political ties to government officials who can offer preferential political services via contractual agreements, changing the nature of market transactions in favour of a foreign subsidiary. We found support for our hypotheses using data from a sample of over 350 subsidiaries located in the Philippines and Thailand.

Ideological polarization and corporate lobbying activity: The contingent impact of corruption distance

This study examines how ideological polarization and corruption jointly impact MNEs’ lobbying decision-making. Building on resource dependence theory, we argue that the ideological polarization of the host country’s politics encourages MNEs to engage in lobbying. Furthermore, we suggest that this effect is strengthened by increased corruption distance between the home and host countries. Testing our hypotheses on a sample of 353 firms from 41 countries, we reveal that the host country’s political environment affects corporate lobbying activity, moderated by the corruption distance from the home country.

Corruption and Outward FDI: A Dynamic Gravity Approach

We study how the perception of bribery level in target markets by foreign investors shapes their investment behavior. The literature is dominated by two views arguing that inward FDI is deterred by (1) corruption in the host country, and (2) corruption differences between home and host markets. We shift the focus from recipient countries to investors’ perspective and develop a framework with distinctions between low and highly corrupt countries to evaluate their firms’ responses to clean and corrupt environments abroad reflected in their outward foreign investments. Applying a dynamic gravity model to a panel data on bilateral FDI among 36 OECD countries, we find that first, low-corruption sources of investment are deterred by widespread bribery in foreign markets and tend to commit more resources to clean environments. Second, and more interestingly, highly corrupt countries invest more in high-corruption target markets, supporting the corruption distance perspective.

The Impact of Cultural Distance and Corruption Distance on the Investment Types Decision of Korean Multinational Firms

The Impact of Cultural Distance and Corruption Distance on the Investment Types Decision of Korean Multinational Firms

Trading Up or Trading Down? How Home Country Corruption Affects Cross-Border R&D Investments

Prior research has demonstrated that corruption has largely negative effects on incoming international investments. What is less clear, however, is to what extent these negative effects are a product not of a host country’s absolute level of corruption, but of the relative distance to the home country’s degree of corruption. We define the Directional Corruption Distance (DCD) as the arithmetic difference between two countries’ corruption levels. Avoiding distorted FDI measures, we analyze the change in Research & Development Stock (RDS) representing more than 10,000 R&D centers of 500 technology-intensive MNCs taken from the Fortune 1000 list. Qualifying earlier research employing FDI as a dependent variable, we observe that countries of lower corruption are preferred destinations (Trading Up Hypothesis), but only under certain conditions. We further show that developed countries with lower degrees of corruption tend to prefer investments in other low-corruption countries (Comfort Hypothesis). High- corruption countries, conversely, do not exhibit this behavior and appear more open towards investment in other high-corruption countries (Familiarity Hypothesis). These findings underscore the influence of contextualizing variables in the origin of investments, and suggest extended research using firm-level field data to compensate for potential bias and flaws in FDI data.

The Impact of Corruption Distance on Ownership Strategies of Spanish and Portuguese MNEs

The ownership strategy of foreign subsidiaries is an important decision for multinational enterprises (MNEs). Previous research has analyzed the effect of country dimensions on this strategy, both from the home and the host country. In this paper we delve into the effect of differences between home and host country on the MNEs’ ownership strategies. Empirically, we analyze the influence of corruption distance on the ownership strategies of Spanish and Portuguese MNEs, using data from 3,941 foreign subsidiaries. We found that the higher the absolute corruption distance between Spain (or Portugal) and the host country, the higher the ownership controlled by MNEs. However, when the host is more corrupt than the home country, MNEs have a lower ownership level in the local subsidiaries.

Beauty is in the Eye of the Beholder:How Corruption Distance Affects R&D Investment Flows

Prior research has demonstrated that corruption has largely negative effects on incoming international investments. What is less clear, however, is to what extent these negative effects are a product not of a host country’s absolute level of corruption, but of the relative distance to the home country’s degree of corruption. We define the Directional Corruption Distance (DCD) as the arithmetic difference between two countries’ corruption levels. Avoiding distorted FDI measures, we analyze Research & Development Inflows (RDIF), as they represent critical MNE activities. Our RDIF dataset portrays all published R&D centers of 500 technology-intensive MNCs taken from the Fortune 1000 list. In accordance with previous research employing FDI as a dependent variable, we observe that RDIF flows towards countries of lower corruption (Trading Up Hypothesis). We further show that developed countries with lower degrees of corruption tend to prefer investments in other low- corruption countries (Comfort Hypothesis). High-corruption countries, conversely, do not exhibit this behavior and appear more open towards RDIF in high-corruption countries (Familiarity Hypothesis). These findings underscore the influence of contextualizing variables in the origin of investments, and suggest extended research using firm-level field data to compensate for potential bias and flaws in FDI data.

Asymmetric influence of corruption distance on FDI

PurposeThe purpose of this paper is to measure the influence of corruption distance (CD) on foreign direct investment (FDI) with the characteristics of the value function from the Prospect Theory (PT) such as loss aversion and diminishing sensitivity.Design/methodology/approachData are derived from Transparency International and the Organisation for Economic Co-operation and Development (OECD) and tested on the countries China, Germany, Italy, Japan, Korea, Russia, Spain and the UK and are analysed with a natural log (LN) regression model.FindingsThe findings indicate a negative asymmetric relationship for China, Germany, Korea, Spain and Russia. This means that negative performance on CD will not have greater impact on FDI outflows than positive performance on CD in the same country. Loss aversion, as well as diminishing sensitivity, as suggested by the PT, cannot be supported with the empirical results.Originality/valueIts originality lies in contributing and extending knowledge on CD on FDI in several ways. First, it analyses the data of emerging and industrialized countries, namely, Russia, China, Germany, Italy, Japan, Korea, Spain and the UK. Second, a potential asymmetric impact is explained by the characteristics of the hypothetical value function of the PT. Third, it seeks empirical evidence by applying an econometric model developed to analyse the variables CD and FDI.

The Impact of Corruption Distance on Ownership Strategies of Spanish and Portuguese MNEs

The ownership strategy of foreign subsidiaries is an important decision for multinational enterprises (MNEs). Previous research has analyzed the effect of country dimensions on this strategy, both from the home and the host country. In this paper we delve into the effect of differences between home and host country on the MNEs’ ownership strategies. Empirically, we analyze the influence of corruption distance on the ownership strategies of Spanish and Portuguese MNEs, using data from 3,941 foreign subsidiaries. We found that the higher the absolute corruption distance between Spain (or Portugal) and the host country, the higher the ownership controlled by MNEs. However, when the host is more corrupt than the home country, MNEs have a lower ownership level in the local subsidiaries.

O impacto da corrupção arbitrária e generalizada nos influxos de IDE e o efeito moderador da distância de corrupção: Evidências da América Latina

Não é consensual na literatura a prevalência de um efeito negativo da corrupção sobre a capacidade de atração de investimento direto estrangeiro (IDE). Alguns países têm, simultaneamente, altos níveis de corrupção e de influxos de IDE. Neste estudo distinguimos o efeito de dois tipos de corrupção – arbitrária e generalizada - e o papel moderador da distância da corrupção entre o país investidor e receptor na capacidade de atração de IDE. Num estudo empírico dos influxos de IDE para países da América Latina, os resultados mostram que a corrupção generalizada reduz a atratividade ao investimento estrangeiro e que a distância de corrupção ameniza o efeito negativo da relação entre corrupção arbitrária do país receptor e os influxos de IDE. Este estudo contribui para aprofundar a pesquisa sobre os efeitos da corrupção, em particular quanto ao efeito diferenciado dos tipos de corrupção e dos efeitos da distância de corrupção nos influxos de IDE.Não é consensual na literatura a prevalência de um efeito negativo da corrupção sobre a capacidade de atração de investimento direto estrangeiro (IDE). Alguns países têm, simultaneamente, altos níveis de corrupção e de influxos de IDE. Neste estudo distinguimos o efeito de dois tipos de corrupção – arbitrária e generalizada - e o papel moderador da distância da corrupção entre o país investidor e receptor na capacidade de atração de IDE. Num estudo empírico dos influxos de IDE para países da América Latina, os resultados mostram que a corrupção generalizada reduz a atratividade ao investimento estrangeiro e que a distância de corrupção ameniza o efeito negativo da relação entre corrupção arbitrária do país receptor e os influxos de IDE. Este estudo contribui para aprofundar a pesquisa sobre os efeitos da corrupção, em particular quanto ao efeito diferenciado dos tipos de corrupção e dos efeitos da distância de corrupção nos influxos de IDE.© 2018 Internext | ESPM. Todos os direitos reservados!

Three Essays on Corruption, Government Transparency and Foreign Direct Investment

The big question of this dissertation summary is: “How does firm-specific technology disruptiveness affect the relationship between country-level corruption distance, host government transparency, and MNE’s decision to expand in an emerging market?” The objective is to offer insight on how MNEs and government can collaboratively achieve greater progress on curbing corruption and on stimulating economic progress and sustainability in emerging markets.

MNEs’ Strategic Response to Corruption Distance: Evidence from a Disruptive Technology Sector

Does the level of direct investment from MNEs headquartered in the advanced economies to emerging markets depend on corruption distance between home and host countries, and on the nature of firms’ ...

Trojan Horses or Local Allies: Host-country National Managers in Developing Market Subsidiaries

We investigate a multinational corporation's (MNC) decision to appoint host-country national (HCN) managers to foreign subsidiaries based on the institutional context of and familiarity with the host country. HCN managers are commonly associated with specialized knowledge, superior responsiveness, and higher legitimacy. Yet, we argue that local familiarity of HCNs can also be perceived as risky or harmful by MNC parents. We analyze how formal and informal institutions affect the trade-off between positive effects and potential costs associated with HCN managers (Local allies vs. Trojan horses). We find that legal institutions protect foreign MNCs from potential costs, encourage the use of HCNs and reinforce their benefits. Corruption and corruption distance, however, increase perceived costs associated with HCN managers up to a point at which they outweigh their perceived benefits.

Asymmetric effect of institutional distance: MNE subsidiaries' bribery in transition economies

I examine how the corruption distance affects MNE subsidiaries' bribing patterns in 24 transition economies. This study challenges the conventional conceptualisation of institutional distance in prior research by adopting asymmetric features of corruption distance. The study finds that the higher the corruption difference, the less likely an MNE subsidiary is to bribe government officials when the subsidiary comes from less corrupt countries, but the more likely the subsidiary is to bribe when it comes from more corrupt countries than the host countries. It indicates that the distance effect of corruption distance is not symmetric but asymmetric.

Corruption Distance and Foreign Direct Investment

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 forty-five countries from 1997 to 2007, we find that corruption distance adversely influences both the likelihood of FDI and the volume of FDI. A novel finding in this study is that 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.