How Taxing is Corruption on International Investors?

This paper studies the effect of corruption on foreign direct investment. The sample covers bilateral investment from twelve source countries to 45 host countries. There are two central findings. First, a rise in either the tax rate on multinational firms or the corruption level in a host country re...

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Bibliographic Details
Published in:The review of economics and statistics 2000-02, Vol.82 (1), p.1-11
Main Author: Wei, Shang-Jin
Format: Article
Language:English
Subjects:
Bribery
Estimated taxes
Foreign direct investments
Foreign investments
Government corruption
Gross domestic product
Host country
Investors
Political corruption
Tax rates
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Summary:This paper studies the effect of corruption on foreign direct investment. The sample covers bilateral investment from twelve source countries to 45 host countries. There are two central findings. First, a rise in either the tax rate on multinational firms or the corruption level in a host country reduces inward foreign direct investment (FDI). In a benchmark estimation, an increase in the corruption level from that of Singapore to that of Mexico would have the same negative effect on inward FDI as raising the tax rate by fifty percentage points. Second, American investors are averse to corruption in host countries, but not necessarily more so than average OECD investors, in spite of the U.S. Foreign Corrupt Practices Act of 1977.
ISSN:0034-6535
1530-9142
DOI:10.1162/003465300558533