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2022, vol. 69, iss. 1, pp. 17-34
Foreign direct investment, corruption, and institutional reforms
University of Guadalajara, Department of Economics, Guadalajara, Mexico

emailrafaelsa@cucea.udg.mx
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.
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About

article language: English
document type: Original Scientific Paper
DOI: 10.2298/PAN181214011E
received: 14/12/2018
accepted: 17/08/2020
published in SCIndeks: 01/07/2022
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