Democratic Accountability,Regulation and Inward Investment Policy

We examine the effect of domestic political accountability on leaders' strategies for attracting foreign direct investment to less developed countries. We consider two policy areas: the tax burden imposed on firms and the regulatory environment in which they operate. We find that democratic governments are more likely to offer relatively lower tax rates to foreign investors, whereas autocratic governments are more likely to offer relatively lax regulation. This result is driven by the greater elasticity of the political survival function to environmental and labor regulations in more democratic countries. Analyses of firm‐level survey data confirm our main theoretical conclusions.     

Country factors and the investment decision-making process of sovereign wealth funds

In this paper, we examine the complex decision-making processes that lead to sovereign wealth funds' (SWFs’) choice of investment location. Using a two-tiered dynamic Tobit panel model, we find that country-level factors do not have the same impacts on the investment decision and the amount to invest and that SWFs tend to invest more frequently and at higher amounts in countries in which they have already invested. More specifically, we find that SWFs prefer to invest in countries with higher political stability, whereas they are more prone to invest large amounts in countries that are less democratic and more financially open. Our results also lend support to the idea that SWFs are prudent in their choice of a target country with regard to their investment decision but behave as more opportunistic investors with regard to the amounts to be invested.     

Are electronic government innovations helpful to deter corruption? Evidence from across the world

Electronic government innovations have been a critical development in public administration in recent years. Many countries have implemented e-government policies to enhance efficiency and transparency and combat corruption. This paper examines the impact of e-government on corruption using longitudinal data for more than 170 countries from 2002 to 2020. The empirical results suggest that e-government serves as a deterrent to corrupt activities. We analyse which e-government domains affect corruption, which types of corruption are more affected by e-government and the circumstances under which e-government is more effective in reducing corruption. The empirical results suggest that online service completion and e-participation are important features of e-government as an anticorruption tool. Evidence suggests that e-participation reduces corrupt legislature activities, public sector theft, executive bribery, and corrupt exchanges. The potential of e-government to deter corruption is higher in countries where corruption is moderate or high and economic development is lower. Higher levels of GDP per capita, foreign direct investment, and political rights are also associated with lower levels of corruption.     

Foreign direct investment: the role of institutional and cultural determinants

Using panel data for 29 source and 65 host countries in the period 1995–2009, we examine the determinants of bilateral FDI stocks, focusing on institutional and cultural factors. The results reveal that institutional and cultural distance is important and that FDI has a predominantly regional aspect. FDI to developing countries is positively affected by better institutions in the host country, while foreign investors prefer to invest in developed countries that are more corrupt and politically unstable compared to home. The results indicate that foreign investors prefer to invest in countries with less diverse societies than their own.     

Democracy,Rule of Law,Corruption Incentives,and Growth

We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters: the “technology of corruption” is the ease with which rent‐seekers can capture a proportion of public spending. The “concentration of political power” is the extent to which rent‐seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions, respectively, are limited.     

CORRUPTION AND ELECTIONS: AN EMPIRICAL STUDY FOR A CROSS-SECTION OF COUNTRIES

In this paper, we study whether voters are more likely to "vote out" a corrupt incumbent than to re-elect him. Specifically, we examine whether they retract their support from political candidates who they think are corrupt by looking at changes in an index of corruption perceptions between the current and the last elections. Our results suggest that corruption in public office is effectively punished by voters. Furthermore, our findings support the idea that both the political system and the democratic experience are important determinants of the voters' reaction and control of corruption; while voters in countries with parliamentary systems or with relatively low levels of democracy react negatively to an increase in corruption, no perceptible effect of this kind was found in countries with mature democracies, and the evidence is inconclusive in the case of countries with presidential systems.     

Corruption and cross-border investment by multinational firms

Motivated by previous studies on the effect of corruption on foreign direct investment, we examine the impact of a distance measure of corruption between host and source countries on cross-border direct investment and find that corruption distance deters cross-border investment. The evidence indicates that corruption distance is not as serious a deterrent of outward direct investment from more-corrupt countries as it is from less-corrupt countries. We conclude that multinational firms with the capacity to engage in bribery can disregard this activity in transparent environments, whereas multinational firms accustomed to operating in transparent environments find it difficult to overcome the administrative complexities in corrupt environments. Journal of Comparative Economics 34 (4) (2006) 839–856.     

The effect of foreign aid on corruption: A quantile regression approach

This paper investigates the effect of foreign aid on corruption using a quantile regression method. We show that foreign aid generally reduces corruption, and its reduction effect is greater in less corrupt countries. Moreover, this effect is different by different donor countries.     

The political economy of corruption and the role of economic opportunities1

In many developing and transition countries, we observe rather high levels of corruption. We argue that the missing political support for anti‐corruption policies is due to a lack of economic and financial reforms. Our model is based on the fact that corrupt officials have to pay entry fees to get lucrative positions. In a probabilistic voting model, we show that this, together with the lack of economic opportunities, makes anti‐corruption policies less likely. Compared to a reformed economy, more voters are part of the corrupt system and, more importantly, rents from corruption are distributed differently. Economic liberalization increases the support for anti‐corruption measures. The additional effect of financial liberalization is ambiguous.     

Foreign direct investment and civil liberties: A new perspective

The conjecture that democracy discourages foreign direct investment (FDI) has been widely refuted in empirical studies. However, we find support of this view. We distinguish between civil and political liberties and propose that multinational firms tend to invest in countries with low civil but with high political liberties. We show that the negative relationship between civil liberties and FDI is hump-shaped. A threshold level of civil liberties exists, below which repression of civil liberties is associated with more FDI. The results are explained by different economic motives for FDI in different groups of countries.     

Attracting Fdi in a Politically Risky World*

Conventional wisdom holds that lack of government commitment deters foreign investment in developing countries. Yet this explanation is not convincing because some econometric studies have found little support for the role of political risk and host governments can offer upfront subsidies that compensate foreign investors for their sunk cost. This paper shows that a second commitment problem upsets the argument. A multinational firm cannot credibly commit to invest in only one country. Since countries differ in production costs and government credibility, this article explains the pattern of investment in a politically risky world.     

National levels of corruption and foreign direct investment

We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.     

Bureaucratic discrimination in electoral authoritarian regimes: Experimental evidence from Russia

Are investors in electoral authoritarian regimes discriminated against for political activism? In this paper, we implement a simple experiment to test whether affiliation with the ruling party or the political opposition affects the probability that investors receive advice from investment promotion agencies in Russian regions. Between December 2016 and June 2017, we sent 1504 emails with a short question and a number of randomized treatments to 188 investment promotion agencies in 70 Russian regions. Although investment promotion agencies are nominally depoliticized in Russia, we find that switching the political affiliation of a potential investor from the opposition party “Yabloko” to the government party “United Russia” on average increases the chances to receive a reply by 30%. The effect strongly depends on regional levels of political competition, with higher levels of discrimination in regions that are less politically competitive.     

Do elites benefit from democracy and foreign aid in developing countries?

A popular argument for the absence of any beneficial effects of foreign aid is that it is skimmed by political elites in recipient countries. However, studies also suggest that aid may be more effective in relatively democratic developing countries. By exploring data on income quintiles derived from the World Income Inequality Database for 88 developing countries, a set of results indicate that foreign aid and democracy in conjunction are associated with a higher share of income held by the upper quintile. It thus appears that foreign aid, contrary to popular beliefs, leads to a more skewed income distribution in democratic developing countries while the effects are negligible in autocratic countries. The paper closes with a discussion of potential mechanisms generating this perverse effect.     

双边政治关系、制度质量与中国对外直接投资*

本文利用中国与其他国家在联合国大会决议的投票行为作为双边政治关系的代理变量,以中国对89个国家2003—2015年对外直接投资数据为样本,分析了双边政治关系对中国对外直接投资的影响。研究表明：整体而言,中国的对外直接投资会受到双边政治关系的显著影响,政治关系的亲密有利于中国对外直接投资的增加。东道国制度质量可以降低中国对外直接投资对双边政治关系的敏感度,且制度质量的调节只能在中国对比自己制度质量高的国家投资时发挥作用。以2008年为分界点,后危机时代双边政治关系对投资的影响更加显著,双边政治关系的经济效应也会显著地受到东道国制度质量的调节。此外,中国改善与“一带一路”沿线国家的政治关系,可以促进中国的对外直接投资。     

THREE ASPECTS OF CORRUPTION

This paper examines corruption from three perspectives—market imperfections, illegality, and investment in socially unproductive human capital. It argues that corruption is an optimal response to market distortions and may improve allocative efficiency. The paper discusses possible market structures that induce illegal, corrupt activities and identifies some principles for deterring corruption. To acquire more corruption opportunities, an individual must invest in some form of human capital. The paper also addresses the implications of corruption for economic growth and reform.     

China's Foreign Direct Investments:Challenges of Due Diligence and Organizational Integration

This paper critically reviews Chinese companies' foreign direct investment practices of recent years. Using case studies involving overseas Greenfield as well as merger and acquisition(MA) of Chinese enterprises, we aim to draw lessons from these experiences. However, because of increasing importance of outbound acquisitions by Chinese companies, this paper focuses on Chinese MA activities. After presenting the theoretical discussions of post-acquisition organizational integration, this paper identifies factors that have contributed to less than expected performances of Chinese foreign investments. Three main factors are identified as the plausible causes of the less than satisfactory outcomes: inadequate due diligence, not considering political and country risks, and cultural differences. In all cases, inexperience of Chinese enterprises in foreign direct investment, either in Greenfield form or MA, has attributed to the problems. Therefore, summing the experiences of the Chinese enterprises that have foreign direct investment is essential for those Chinese investors that intend to invest overseas. Conduct of meaningful, in-depth due diligence before serious negotiations for investment or acquisition, inclusion of risk premium for political risk in cash flow analysis, and early post-merger integration planning are essential for avoidances of bitter outcomes many Chinese investors experienced overseas.     

Democracy in the neighborhood and foreign direct investment

The determinants of foreign direct investment (FDI) have been extensively studied. Even though there is extensive research in the area, most of it is based on analyzing the effects of host country characteristics on FDI flows, and yet there is little research on how neighboring country characteristics play a role in facilitating FDI flows to host countries. This paper analyzes the association between the democracy level in neighboring countries and FDI flows to host countries. Using bilateral FDI flows from the OECD countries, with a large host country sample, we find that countries surrounded by democratic countries attract higher FDI flows. Furthermore, we find evidence that countries that are surrounded by neighboring countries with good institutions tend themselves to have better institutions, experience lower civil conflict, and have higher political stability and hence indirectly attract higher FDI flows. Our findings suggest that if neighboring countries act in such way as to become more democratic, FDI flows to these countries would be higher since not only does improving the quality of democracy attract more FDI inflows, but also being surrounded by neighboring advanced democratic countries will also lead to higher FDI flows to them.     

Technological Constraints,Firm Heterogeneity,and Location Choice of Multinational Enterprises

This paper aims to examine the relationship between the location choices of multinational enterprises and their productivity considering the North–South differences in regard to technological constraints. We find that home firms with the highest level of productivity choose to undertake foreign direct investment (FDI) in the developed countries and they choose to export to, rather than do FDI in, developing countries. This result explains why not many high tech industries exist in developing countries. Using Japanese firm level data, we also confirm that Japanese high tech firms tend to undertake FDI in developed countries, but hesitate to invest in developing countries empirically.     

The OECD Anti-Bribery Convention: Changing the currents of trade

This paper examines how criminalizing the act of bribing a foreign public official affects international trade flows using a watershed global anti-corruption initiative — the 1997 OECD Anti-Bribery Convention. I exploit variation in the timing of implementation by exporting countries and in the level of corruption of importing countries to quantify the Convention's effects on bilateral exports. I use a large panel of country pairs to control for confounding global and national trends and shocks. I find that, on average, the Convention caused a reduction in exports from signatory countries to high corruption importers relative to low corruption importers. In particular, we observe a 5.7% relative decline in bilateral exports to importers that lie one standard deviation lower on the Worldwide Governance Indicators corruption index. This suggests that by creating large penalties for foreign bribery, the Convention indirectly increased transaction costs between signatory countries and high corruption importers. The Convention may have induced OECD firms to divert their exports to less corrupt countries; while non-OECD firms not bound by the Convention may have increased their exports to corrupt countries. I also find evidence that the Convention's effects differed across product categories.