Corruption and competition for resources

An increasing share of world FDI is carried out by multinationals from developing countries. These investors may have objectives and constraints that differ from their developed country counterparts. In this paper we focus on differences in attitudes to corruption, and how these may shape the competition for the right to extract resources in a developing country context. We show how differences in the investors’ level of technology and differences in the host country government’s trade-off between bribes and taxes determine who wins the competition for the resource and the winning price. One finding is that competition from a bribe-willing investor may induce a bribe-averse investor to enter into corruption. Surprisingly, however, we also find that competition with a bribe-willing investor may induce the bribe-averse investor to increase its tax payments.