Date of Award
Since 1979 when China opened its economic borders, it has seen an influx of foreign direct investment that gradually snowballed into enormous annual inflows of capital. Researchers have taken advantage of this event as an incredibly useful testing ground of theories regarding FDI. Using this new data from China, along with data from countries already open to outside investment, many variables, such as GDP, wage, and distance, have been found to consistently correlate in one way or another to particular aspects of FDI inflow, including amount, location, timing, and type.
One such variable that has had some attention is corruption. While it has been well established that corruption in general is a deterrent to FDI inflows, little else can be confidently said about its effect on FDI. This paper is an attempt to at least get a sense of what the effect of corruption might be on two aspects of FDI: timing and type.
These are both important effects to know about, certainly at least from the standpoint of governments. If it could be shown that firms are less hesitant to invest, or more willing to commit high equity type investments when corruption is low, governments, particularly those in developing countries that rely on FDI, may be persuaded to make more of an effort to fight corruption and improve governance.
This paper will describe two models, one measuring the effect of corruption on how quickly a firm chooses to invest in China, and another measuring the effect of corruption on what sort of investment the firm makes. The remainder of the paper is divided into four parts: A survey of previous literature on the subject, a description of the empirical framework (itself subdivided into parts, discussions of the dependent variables under consideration, the corruption measures used, the control variables, and the source of data), a report of the empirical results, and finally the conclusion.
Billings, Jacob, "The Impact of Corruption on the Timing and Mode of Entry by U.S. Firms in China" (2009). Economics Undergraduate Honors Theses. 3.