Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence / Beata K. Smarzynska, Shang-Jin Wei.

Format:

Book

Author/Creator:

Smarzynska, Beata K.

Contributor:

National Bureau of Economic Research.

Wei, Shang-Jin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7969.

NBER working paper series no. w7969

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Corruption and Composition of Foreign Direct Investment

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

This paper studies the impact of corruption in a host country on foreign investor's preference for a joint venture versus a wholly-owned subsidiary. There is a basic trade-off in using local partners. On the one hand, corruption makes local bureaucracy less transparent and increases the value of using a local partner to cut through the bureaucratic maze. On the other hand, corruption decreases the effective protection of investor's intangible assets and lowers the probability that disputes between foreign and domestic partners will be adjudicated fairly, which reduces the value of having a local partner. The importance of protecting intangible assets increases with investor's technological sophistication, which tilts the preference away from joint ventures in a corrupt country. Empirical tests of the hypothesis on a firm-level data set show that corruption reduces inward FDI and shifts the ownership structure towards joint ventures. Technologically more advanced firms are found to be less likely to engage in joint ventures.

Notes:

Print version record

October 2000.