WORKING PAPER 11-20

Rent(s) Asunder: Sectoral Rent Extraction Possibilities and Bribery by Multinational Corporations

by Edmund Malesky, University of California, San Diego
and Nathan Jensen, Washington University
and Dimitar Gueorguiev, University of California, San Diego

December 2011

Openness to foreign investment can have differential effects on corruption, even within the same country and under the exact same domestic institutions over time. This theoretical approach departs from standard political economy by attributing corruption motives to firms as well as officials. Rather than interpreting bribes solely as a coercive "tax" imposed on business activities, it allows for the possibility that firms may be complicit in using bribes to enter protected sectors. Variation in bribe propensity across sectors is anticipated according to expected profitability which is proxied with investment restrictions. Specifically, it is expected that foreign investment will not be associated with corruption in sectors with fewer restrictions and more competition, but will increase dramatically as firms seek to enter restricted and uncompetitive sectors that offer higher rents. This effect is tested using a list experiment, a technique drawn from applied psychology, embedded in a nationally representative survey of 10,000 foreign and domestic businesses in Vietnam. Findings show that the impact of domestic reforms and economic openness on corruption is conditional on polices that restrict competition by limiting entry into the sector.

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RELATED LINKS

Book: Foreign Direct Investment in the United States: Benefits, Suspicions, and Risks with Special Attention to FDI from China August 2013

Book: Outward Foreign Direct Investment and US Exports, Jobs, and R&D: Implications for US Policy August 2013

Policy Brief 13-1: The World Needs a Multilateral Investment Agreement January 2013

Working Paper 12-16: Transactions: A New Look at Services Sector Foreign Direct Investment in Asia October 2012

Working Paper 08-7: Policy Liberalization and FDI Growth, 1982 to 2006 August 2008

Op-ed: Avoiding Another Dubai February 28, 2006

Book: Does Foreign Direct Investment Promote Development? May 2005



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