Corruption is generally accepted as a phenomenon which is occurring worldwide. Nevertheless, the data which is quantifying its manifestation showcase geographical as well as cultural differences. Unscrupulous governments, non existing economic prosperity, a high degree of political instability and a population deeply afflicted by poverty are the most conspicuous explanations for elevated levels of corruption.
This Thesis explores the nexus between corruption and FDI especially in developing and 3rd world countries.
Consequently, the aim of this thesis is to analyze the interplay between corruption and FDI inflows. The principal question is hereby under which circumstances investors seem to "overlook" potential grievances in the recipient countries and which effect el-evated FDI inflows have on the prosperity of the beneficiary economy. By exploring the repercussions FDI has on economic growth, in the further course and in a separate section, the thesis devotes special attention to developing countries.
Table of Contents
1. INTRODUCTION
2. CORRUPTION
2.1 DEFINITION OF CORRUPTION
2.2 FORMS OF CORRUPTION
2.3 PSYCHOLOGY BEHIND CORRUPTION
2.4 MEASURING CORRUPTION
2.4.1 LIMITATIONS OF MEASUREMENTS OF CORRUPTION
2.4.2 MAGNITUDE OF CORRUPTION
2.5 CAUSES OF CORRUPTION
2.5.1 NATURAL RESOURCE ENDOWMENT
2.5.2 SHADOW ECONOMY
2.5.3 WAGES
2.5.4 TRANSPARENCY AND FREEDOM OF THE PRESS
2.5.5 POLITICAL COMPETITION AND FREE MARKET
2.5.6 HISTORICAL BACKGROUND (PRIMARILY COLONIAL)
2.5.7 GENDER
2.5.8 RELIGION
2.5.9 MIGRATION
2.6 CORRUPTION AND ECONOMIC GROWTH
2.7 CORRUPTION AND ITS EFFECT ON FIRMS
2.8 CORRUPTION AND ITS CONSEQUENCES IN DEVELOPING COUNTRIES
2.9 FIGHTING CORRUPTION
3. FOREIGN DIRECT INVESTMENT
3.1 DEFINITION AND A HISTORICAL PERSPECTIVE OF FDI
3.2 FORMS OF FDI
3.3 MOTIVES FOR FDI
3.4 FDI AND GROWTH
3.4.1 CROWDING OUT
3.4.2 CROWDING IN
3.5 POVERTY REDUCTION THROUGH EXTERNAL CHANNELS
3.6 IMPORTANCE OF FDI IN DEVELOPING COUNTRIES
3.7 FDI IN NUMBERS
4. NEXUS BETWEEN FDI AND CORRUPTION
5. CONCLUSION AND OUTLOOK
Research Objectives and Themes
This thesis investigates the complex interplay between corruption and Foreign Direct Investment (FDI) inflows, specifically focusing on the challenges faced by developing countries. It explores whether corruption serves as a deterrent to investors or, under specific circumstances, acts as a "lubricant" that facilitates business operations, while simultaneously analyzing the economic repercussions of these investments on host nations.
- The impact of corruption on international investment decisions.
- The role of natural resources and shadow economies in driving corruption.
- Distinguishing between "greasing the wheels" and "sand in the wheels" hypotheses.
- The effectiveness of institutional and political frameworks in mitigating corruption.
- Socio-economic consequences of corruption for developing nations and their attractiveness to MNEs.
Excerpt from the Book
2.3 Psychology behind corruption
Arguably one of the most significant contributions to the psychology of corruptive behavior is the pioneering paper “Other people´s money” from Cressey (1953). The scholar herein developed a triangle model (subsequent figure) which showcases how individuals are led to fraudulent misconduct. According to Cressey, fraudulent behavior can be usually explained by the interplay of the three conditions: pressure, opportunity and rationalization.
The pressure to commit a serious misconduct can have various explanations. Besides the obvious explanation of pure greed, other scenarios are similarly conceivable. Especially in developing countries medical expenses for instance can be an unbearable burden for many families and might be a reason why individuals engage in fraudulent behavior. The latter explanatory variables of the fraud triangle are deeply intertwined. On the one hand the opportunity, which led the individual believe that the chances of getting convicted are very slim. Those circumstances are often a testament of poor governance and legal oversight.
And on the other hand, rationalization which is similarly often connected to circumstances which are predominantly found in developing countries. Those aforementioned conditions include: corruption is common underneath the perpetrators peers, the wage level in the respective country is low or fraud was the last available option in order to provide for my family (Mansor, 2015). Conclusively, it therefore comes as no surprise, given the qualitative theoretical background, that corruption levels are noticeably higher in developing countries.
Summary of Chapters
1. INTRODUCTION: Outlines the global phenomenon of corruption and its controversial relationship with economic development and foreign investment.
2. CORRUPTION: Provides a comprehensive definition, measurement methods, and root causes of corruption, including psychological and institutional drivers.
3. FOREIGN DIRECT INVESTMENT: Examines the definition, forms, and motives of FDI, while analyzing its role in poverty reduction and economic growth in developing countries.
4. NEXUS BETWEEN FDI AND CORRUPTION: Reviews empirical literature to determine whether corruption acts as a barrier or an incentive for foreign direct investment.
5. CONCLUSION AND OUTLOOK: Summarizes the key findings regarding the FDI-corruption nexus and discusses future challenges for developing economies in utilizing FDI effectively.
Keywords
Corruption, Foreign Direct Investment, FDI, Developing Countries, Economic Growth, Bribery, Institutional Economics, Shadow Economy, Resource Curse, Governance, Principal-Agent Theory, Poverty Reduction, Multinational Enterprises, Political Economy, Investment Frameworks.
Frequently Asked Questions
What is the core focus of this thesis?
The thesis explores the relationship between corruption and Foreign Direct Investment, specifically asking whether high corruption levels deter or encourage foreign investment in developing economies.
What are the central thematic areas covered?
Key themes include the causes of corruption, the psychological drivers of fraudulent behavior, the determinants of FDI, and the conflicting literature on whether corruption hinders or facilitates international business.
What is the primary objective of this research?
The primary objective is to analyze the interplay between corruption and FDI, aiming to understand the circumstances under which investors might ignore corruption and the impact of these investments on the host country's prosperity.
Which methodology is employed in this work?
The study conducts an extensive literature review and classification of existing empirical and theoretical contributions to synthesize the current academic understanding of the corruption-FDI nexus.
What topics are discussed in the main body?
The main body covers definitions of corruption, the "resource curse," the impact of shadow economies, the effects of corruption on firm performance, and a thorough review of the debate regarding whether corruption "greases the wheels" of business.
What are the key descriptive terms for this work?
Major keywords include Corruption, Foreign Direct Investment, Developing Countries, Economic Growth, Institutional Economics, and Investment Climate.
How does the "Principal-Agent" model explain corruption?
It describes corruption as a trade of favors where an agent exploits their delegated public authority for personal gain, while the principal is unable to adequately monitor the agent due to costs or structural weaknesses.
Why is migration relevant to this study?
The study examines migration as a mechanism where "corruption culture" may travel between countries, potentially worsening institutional quality in host nations or leading to "brain drain" in the origin countries.
How do developing countries differ in their FDI return profiles?
The thesis notes that while FDI in developing or transitioning economies may offer higher potential returns, these are often balanced against higher risks and the lack of political and legal stability compared to developed nations.
- Citar trabajo
- Jens Nolte (Autor), 2019, Corruption and foreign direct investments in developing countries, Múnich, GRIN Verlag, https://www.grin.com/document/536745
