What is the impact of corruption on foreign direct investment?

Résumé du document

One question that has been undermining the formulation of economic and financial politics in developing countries is related to the importance of foreign direct investments in financial growth. Not only is there a certain dependency on direct investment of the growth of these countries, but these investments also depend on the level of transparency (or lack of corruption) of these countries. They also play a big role in avoiding or soothing financial crisis. Moreover, in a different analysis we can verify that there is also an inverse relation between foreign direct investment and corruption.

Extraits

[...] Besides that, Tanzi and Davoodi (1997) also note that until a few years ago some investor countries considered legal and tax deductible the commissions paid to foreign officials, but in recent years the OECD has moved to criminalize "commissions" to foreign officials, a way to recognize the connection between foreign direct investment and corruption. In conclusion to this work we may say that we have gone through a series of different authors in order to find a connection between corrupt government practices and foreign direct investment. [...]

[...] Those factors are trade policy, monetary policy, capital flows and foreign investment, property rights, regulation banking, wage and price controls, taxation, and the black market. The index suggests that lesser economic freedom and more government intervention in the economy results in a greater level of corruption, therefore, more state centered economies tend to be more corrupt. In their article “Foreign direct investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties”, Jennifer Tobin and Susan Rose-Ackerman point out two main ways of attracting Foreign direct investments, being complementary or substitutes. [...]

[...] As a consequence, this asymmetry in information may be stronger in respect to international direct investment. In the theory posed by Shang-Jin Wei the existence of corruption could temper with this effect. This need for international investors to pay bribery and deal with extortion by corrupt bureaucrats would tend to increase with the frequency and the extent of their interactions with local bureaucrats. Given the fact that international direct investors are more likely to have repeated interactions with local officials than international banks or portfolio investors, local corruption would be more damaging to foreign direct investment than other forms of capital flows. [...]

[...] He notes the example of the Mexican and Tequila crisis and the more recent Asian currency crisis in which the IMF, the World Bank, and the G7 countries mobilized a large amount of funds for these countries to prevent or minimize the potentially massive defaults on bank loans. Also in many developing country governments implicitly or explicitly guarantee the loans borrowed by the private sector in the country. On the other hand, there are not such measures for the recovery of nationalized or extorted assets of foreign direct investors in exception of expensive insurance coverage. [...]

[...] We may say that we have found that connection imperatively, which comes through means of a distrust by investors (especially foreign direct investors, in spite of banks which may continue doing businesses with these countries) From this link we can also say of a more vulnerable position in these countries in times of economic and financial crisis, and moreover, we can also talk of a self fulfilling aspect of foreign direct investment in which the bigger the flow of investment, the more corruption will be brought down. Once the risk is diminished and the countries show a growth in transparency, the more investments they will get that in their turn will contribute to more stable institutions with more reinforced property rights. [...]