Foreign Direct Investment, Corruption, and Institutional Reforms

  • Rafael Salvador Espinosa Ramirez Department of Economics, University of Guadalajara

Abstract

Corruption impacts the competitive conditions among firms and the flow of foreign investment. Institutional reforms made for fighting against corruption are sometimes useless. We develop a model in which a corrupted government tries to set an optimal institutional level taking into account the cost of this policy on foreign investment, the benefit of a corrupted domestic firm and the benefit of local citizens. A political contribution is made by a corrupted lobby group in order to benefit from a lower institutional level. Our results suggest that the optimal institutional level depends on the degree of efficiency of firms and the level of corruption of the host government. 

Key words: Corruption, Lobbying, Institutional reforms, Foreign direct investment. 

JEL: F21, F30, K42

How to Cite
Espinosa Ramirez R.S. (2020). Foreign Direct Investment, Corruption, and Institutional Reforms. Panoeconomicus, Advance online publication, 1-20. doi:10.2298/PAN181214011E
Section
Original scientific paper