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Corruption and Private Participation Projects in Central and Eastern Europe

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Abstract

This paper investigates the role of host-country corruption in private participation projects in emerging markets. Privatization activities, especially in infrastructure development, were traditionally inaccessible to multinational enterprises, but they are nowadays encouraged in many countries. Prior literature on corruption finds two contradictory (“grease” and “sand”) results when examining the consequences of corruption on investments. Drawing on a sample of 1185 projects from 1997 to 2013 in 18 Central and Eastern European Countries, our results show that higher levels of host-country corruption are associated with greater probabilities of failure. Our results also show that including local investors in the ownership structure of the project weakens the negative effect of corruption by reducing the liability of foreignness. In contrast, being a publicly traded project has no moderating effect in the effect of corruption in this region. Therefore, our results highlight that not all common strategies to deal with corruption are equally effective in this region.

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Notes

  1. The private sector can exit in one of the following ways: (1) selling or transferring its economic interest back to the government before fulfilling the contract terms, (2) removing all management and personnel from the concern, or (3) ceasing operation, service provision, or construction for 15% or more of the license or concession period, following the revocation of the license or repudiation of the contract.

  2. As opposed to informal corruption, which refers to petty, routine corruption citizens experience in their daily lives, formal corruption refers to larger-sum transactional activities embedded in institutional structures related to public/private sector actors operating from positions of power (Keig et al. 2015, p. 90). Unfortunately, data availability for informal corruption measures is limited and only covers about a half of the years and countries included in our sample.

  3. We are grateful to an anonymous reviewer for this suggestion.

  4. Results available from the corresponding author upon request.

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Acknowledgements

The authors are very grateful to Co-Editor-in-Chief Michael-Jörg Oesterle and two anonymous reviewers for their helpful suggestions throughout the reviewing process. This research was supported by an Insight Development Grant from the Social Sciences and Humanities Research Council of Canada (#430-2013-000022).

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Jiménez, A., Russo, M., Kraak, J.M. et al. Corruption and Private Participation Projects in Central and Eastern Europe. Manag Int Rev 57, 775–792 (2017). https://doi.org/10.1007/s11575-017-0312-4

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