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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
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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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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