"Corruption and Foreign Direct Investment."
Habib, Moshin, and Leon Zurawicki. "Corruption and Foreign Direct Investment." Journal of International Business Studies 33 (2002): 291-307.
Since 1986 the volume of foreign direct investments (FDI) has increased annually by 20%. (WIR 2001) One issue that has gotten attention lately is the corruption in different countries. There now seem to be huge differences between the very corrupt countries and the less corrupt countries. However, it seems that the level of corruption in a country does not impact the amount of FDI. According to Habib, China, Brazil, Thailand, and Mexico receive large amounts of FDI, while they are perceived to have high corruption. In addition, Italy and Belgium are both perceived to be modestly corrupt yet they also receive substantial yearly FDI.
The results of the authors’ study on corruption found that corruption does impact the amount of FDI. Foreign investors may avoid corruption because they think it is morally wrong, but also because it tends to cause investments to be more costly and risky. Basically, foreign investors are unwilling to deal with the planning and operational pitfalls related to an environment with a difficult corruption level. (Habib) Foreign investors need to fight corruption because it is in their best interests. In addition, foreign investors should try to get companies that are known throughout the world as being stable and uncorrupt to move into the corrupt areas to act as positive role models for these companies.
Corruption causes many problems. It raises costs, increases uncertainty, and produces bottlenecks. It also causes distortions, which allows certain companies easier access to markets than others. It also causes concerns for investors. The greater the difference between the home country and the other country in corruption, the less likely the business deal will be done fairly and the terms applied mutually.