Are Foreign-Owned Firms More Likely to Pay Bribes than Domestic Ones? Evidence from Emerging Markets.

Webster, A. and Piesse, J., 2018. Are Foreign-Owned Firms More Likely to Pay Bribes than Domestic Ones? Evidence from Emerging Markets. World development, 101 (January), 142 - 161.

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DOI: 10.1016/j.worlddev.2017.08.007

Abstract

An extensive literature exists on the adverse effects of corruption on inward FDI and the impact this may have on economic development but the reverse causality has not been fully explored. Legislation in the US and the EU prohibits firms from engaging in corrupt practices in foreign countries and this suggests that foreign-owned firms might be less likely to pay bribes. However, such legislation may be ineffective because foreign firms have to adapt to local market conditions or risk being uncompetitive. Using firmlevel data for 41 emerging countries, a probit model estimates the probability that a firm pays bribes. To allow for possible endogeneity this probit analysis is repeated with an instrument to proxy for endogenous foreign ownership. Then, a propensity score matching technique tests for differences in the propensity to pay bribes by domestic and foreign firms. The paper finds no difference in the behavior of foreignowned and domestic firms with respect to corrupt practices. Results are robust to different levels of foreign ownership and support the view that foreign-owned firms adapt to local practices and are neither more nor less likely to pay bribes than comparable domestic firms. The paper finds that other variables including bureaucracy, government contracts, and perceived difficulties with civil society (legal and political) do have statistically significant effects on increasing bribery and that some others, such as per capita GDP, tend to reduce bribery. The study concludes that there is no evidence that foreign ownership, after investment has occurred, tends to reduce bribery but it does support the view that foreignowned firms adopt local behavioral norms.

Item Type:Article
ISSN:0305-750X
Uncontrolled Keywords:inward FDI; corruption; emerging markets; propensity score matching
Group:Faculty of Management
ID Code:29807
Deposited By: Unnamed user with email symplectic@symplectic
Deposited On:02 Oct 2017 14:50
Last Modified:02 Oct 2017 14:50

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