Journal of International Business Studies

, Volume 37, Issue 6, pp 767–785 | Cite as

The MNC as an agent of change for host-country institutions: FDI and corruption

Article

Abstract

Most empirical research examines how the institutional environment of corruption shapes the behavior of multinational corporations (MNCs). In this study, we would like to highlight the other side of the picture: how the presence of MNCs may shape the institutional environment of corruption over time. We propose three avenues through which the MNCs may have an impact on its host institutions: regulatory pressure effect, demonstration effect, and professionalization effect. Based on extensive data on foreign direct investment and corruption for a large sample of countries over the last 30 years, the empirical results are generally consistent with our hypothesis. Such findings provide a glimmer of hope for the future of the host country where corruption is prevalent.

Keywords

foreign direct investment corruption 

Notes

Acknowledgements

We would like to thank the four guest editors of this special issue, the participants at the JIBS ‘Three Lenses’ conference, and our colleague Kendall Roth for valuable suggestions. We also gratefully acknowledge the support of the Center for International Business Education and Research (CIBER) at the University of South Carolina for this research project.

References

  1. Ades, A. and Di Tella, R. (1994) Competition and Corruption, Institute of Economics and Statistics Discussion Paper No. 169 University of Oxford.Google Scholar
  2. Aitken, B.J. and Harrison, A.E. (1999) ‘Do domestic firms benefit from direct foreign investment? Evidence from Venezuela’, American Economic Review 89(3): 605–618.CrossRefGoogle Scholar
  3. Barro, R. (1991) ‘Economic growth in a cross-section of countries’, Quarterly Journal of Economics 106(2): 407–444.CrossRefGoogle Scholar
  4. Barro, R. (1996) Determinants of Economic Growth: A Cross Country Empirical Study. NBER Working Paper No. 5698 National Bureau of Economic Research: Cambridge, MA.CrossRefGoogle Scholar
  5. Blomström, M. and Kokko, A. (1998) ‘Multinational corporations and spillovers’, Journal of Economic Surveys 12(3): 247–277.CrossRefGoogle Scholar
  6. Dacin, M.T., Ventresca, M. and Beal, B. (1999) ‘The embeddedness of organizations: dialogue and directions’, Journal of Management 25(3): 317–356.CrossRefGoogle Scholar
  7. Davis, P.S., Desai, A.B. and Francis, J.D. (2000) ‘Mode of international entry: an isomorphism perspective’, Journal of International Business Studies 31(2): 239–258.CrossRefGoogle Scholar
  8. Djankov, S.D., La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (2003) ‘Courts’, Quarterly Journal of Economics 118(2): 453–517.CrossRefGoogle Scholar
  9. DiMaggio, P. and Powell, W. (1983) ‘The Iron cage revisited: institutional isomorphism and collective rationality in organizational fields’, American Sociological Review 48(2): 147–160.CrossRefGoogle Scholar
  10. Doh, J., Rodriguez, P., Uhlenbruck, K., Collins, J. and Eden, L. (2003) ‘Coping with corruption in foreign markets’, Academy of Management Executive 17(3): 114–127.CrossRefGoogle Scholar
  11. Eden, L., Levitas, E. and Martinez, R. (1997) ‘The production, transfer, and spillover of technology’, Small Business Economics 9(1): 53–66.CrossRefGoogle Scholar
  12. Globerman, S. (1979) ‘Foreign direct investment and ‘spillover’ efficiency benefits in Canadian manufacturing industries’, Canadian Journal of Economics 12(1): 42–56.CrossRefGoogle Scholar
  13. Glynn, M.A. and Abzug, R. (2002) ‘Institutional identity: symbolic isomorphism and organizational names’, Academy of Management Journal 45(1): 267–280.CrossRefGoogle Scholar
  14. Görg, H. and Strobl, E. (2001) ‘Multinational companies and productivity spillovers: a meta-analysis’, The Economic Journal 111(475): 723–739.CrossRefGoogle Scholar
  15. Haddad, M. and Harrison, A. (1993) ‘Are there positive spillovers from direct foreign investment? Evidence from panel data for Morocco’, Journal of Development Economics 42(1): 51–74.CrossRefGoogle Scholar
  16. Henisz, W.J. (2000) ‘The institutional environment of economic growth’, Economics and Politics 12(1): 1–31.CrossRefGoogle Scholar
  17. Hofstede, G. (2001) Culture's Consequences (2nd edn). Sage Publications: London.Google Scholar
  18. Husted, B. (1999) ‘Wealth, culture and corruption’, Journal of International Business Studies 30(2): 339–360.CrossRefGoogle Scholar
  19. Jaggers, K. and Marshall, M.G. (2000) Polity IV Project. Working Paper Center for International Development and Conflict Management, University of Maryland.Google Scholar
  20. Kaufmann, D., Kraay, A. and Zoido-Lobatón, P. (1999) Governance Matters, World Bank Research Paper No. 2196. The World Bank: Washington, DC.Google Scholar
  21. Kimbro, M. (2002) ‘A cross-country empirical investigation of corruption and its relationship to economic, cultural, and monitoring institutions: an examination of the role of accounting and financial statements quality’, Journal of Accounting, Auditing and Finance 17(4): 325–351.CrossRefGoogle Scholar
  22. Knack, S. and Keefer, P. (1995) ‘Institutions and economic performance: cross-country tests using alternative institutional measures’, Economics and Politics 7(3): 207–227.CrossRefGoogle Scholar
  23. Knack, S. and Keefer, P. (1997) ‘Does social capital have an economic payoff? A cross-country investigation’, Quarterly Journal of Economics 112(4): 1251–1288.CrossRefGoogle Scholar
  24. Kostova, T. and Roth, K. (2002) ‘Adoption of an organizational practice by subsidiaries of multinational corporations: institutional and relational effects’, Academy of Management Journal 45(1): 215–233.CrossRefGoogle Scholar
  25. Lambsdorff, J. (1999) Corruption in Empirical Research: A Review. Working Paper Transparency International: Berlin.Google Scholar
  26. La Porta, R., Lopez de Silanes, F., Shleifer, A. and Vishny, R. (1997) ‘Trust in large organizations’, American Economic Review Papers and Proceedings 87(May): 333–338.Google Scholar
  27. Liu, X., Siler, P., Wang, C. and Wei, Y. (2000) ‘Productivity spillovers from foreign direct investment: evidence from UK industry level panel data’, Journal of International Business Studies 31(3): 407–425.CrossRefGoogle Scholar
  28. Macrae, J. (1982) ‘Underdevelopment and the economics of corruption: a game theory approach’, World Development 10(8): 677–687.CrossRefGoogle Scholar
  29. Mauro, P. (1995) ‘Corruption and growth’, Quarterly Journal of Economics 110(3): 681–712.CrossRefGoogle Scholar
  30. Mauro, P. (1997) ‘The Effects of Corruption on Growth Investment, and Government Expenditure: A Cross-Country Analysis’, in K.A. Elliott (ed.) Corruption and the Global Economy, Institute for International Economics, Washington DC, pp: 83–107.Google Scholar
  31. Oliver, C. (1997) ‘Sustainable competitive advantage: combining institutional and resource-based views’, Strategic Management Journal 18(9): 697–713.CrossRefGoogle Scholar
  32. Ramirez, A. and Kwok, C. (2006) Multinationality as a Moderator of National Institutions: The Case of Culture and Capital Structure Decisions. CIBER Working Paper University of South Carolina.Google Scholar
  33. Rao, A.N., Pearce, J.L. and Xin, K. (2005) ‘Governments, reciprocal exchange and trust among business associates’, Journal of International Business Studies 36(1): 104–118.CrossRefGoogle Scholar
  34. Robertson, C.J. and Watson, A. (2004) ‘Corruption and change: the impact of foreign direct investment’, Strategic Management Journal 25(4): 385–396.CrossRefGoogle Scholar
  35. Rodriguez, P., Uhlenbruck, K. and Eden, L. (2005) ‘Government corruption and the entry strategies of multinationals’, Academy of Management Review 30(2): 383–396.CrossRefGoogle Scholar
  36. Rose-Ackerman, S. (1975) ‘The economics of corruption’, Journal of Public Economics 4(2): 187–203.CrossRefGoogle Scholar
  37. Rose-Ackerman, S. (1999) Corruption and Government: Causes, Consequences, and Reform, Cambridge University Press: London.CrossRefGoogle Scholar
  38. Shleifer, A. and Vishny, R. (1993) ‘Corruption’, Quarterly Journal of Economics 108(3): 599–617.CrossRefGoogle Scholar
  39. Triandis, H.C., Carnevale, P., Gelfand, M., Robert, C., Wasti, A., Probst, T., Kashima, E., Dragonas, T., Chan, D., Chen, X., Kim, U., Drue, C., Vliert, E., Iwao, S., Ohibuchi, K. and Schmitz, P. (2001) ‘Culture and deception in negotiations: a multilevel analysis’, International Journal of Cross Cultural Management 1(1): 73–90.CrossRefGoogle Scholar
  40. Transparency International (2001) Corruption Perceptions Index 2001, Transparency International: Berlin.Google Scholar
  41. Wei, S. (1997) Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills. NBER Working Paper No. 6255 National Bureau of Economic Research: Cambridge, MA.CrossRefGoogle Scholar
  42. Westney, D.E. (1993) ‘Institutionalization Theory and the Multinational Corporation’, in S. Ghoshal and D.E. Westney (eds.) Organization Theory and the Multinational Corporation, St Martin's Press: New York, pp: 53–75.CrossRefGoogle Scholar
  43. World Bank (1999) World Development Indicators, World Bank: Washington, DC.Google Scholar

Copyright information

© Academy of International Business 2006

Authors and Affiliations

  1. 1.Moore School of Business, University of South CarolinaColumbiaUSA
  2. 2.Stephen M Ross School of Business, University of MichiganAnn ArborUSA

Personalised recommendations