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Corruption and Its Effects on FDI: Analysing the Interaction Between the Corruption Levels of the Home and Host Countries and Its Effects at the Decision-Making Level

Abstract

This study furthers our understanding of how corruption affects the decision-making process of allocating foreign direct investment. Drawing on the responses of 28 managers in charge of establishing operations in a highly corrupt host country, we argue that those firms based in home countries with low levels of corruption are more proactive in preparing to face corruption abroad than those based in countries with high corruption levels. This means that firms from less corrupt home countries have strategies in place to deal with high corruption abroad. This finding is based on the fact that these firms have stronger pressures to not engage in corruption from their home stakeholders. Also, these firms might not have the experience of dealing with corruption at home, which hinders their potential to deal with corruption abroad. On the other hand, those firms based in highly corrupt home countries do not have clear strategies to deal with corruption abroad. This assertion is based on the fact that these firms might have familiarity in dealing with corruption and thus, might not see it as an obstacle to operating abroad.

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Acknowledgements

We would like to thank the editor and the two anonymous reviewers for their useful suggestions for improvement of this manuscript. We would also like to thank Dr. Rick Woodward and Dr. Mark Cordano for their helpful comments at different stages of this project.

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Correspondence to Jose Godinez.

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Godinez, J., Liu, L. Corruption and Its Effects on FDI: Analysing the Interaction Between the Corruption Levels of the Home and Host Countries and Its Effects at the Decision-Making Level. J Bus Ethics 147, 705–719 (2018). https://doi.org/10.1007/s10551-016-3380-7

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  • DOI: https://doi.org/10.1007/s10551-016-3380-7

Keywords

  • Corruption
  • Foreign direct investment allocation
  • Firm-level analysis