Content area
Full Text
Asia Pac J Manag (2013) 30:487511
DOI 10.1007/s10490-012-9311-y
Ram Mudambi & Pietro Navarra & Andrew Delios
Published online: 12 July 2012# Springer Science+Business Media, LLC 2012
Abstract We analyze favors as utilization of informal modes of exchange within a formal economy, relating their negative aspects to corruption. This exercise enables us to integrate them into a model linking national institutional factors to the magnitude of cross-country FDI flows. In our empirical tests of FDI inflows in 55 countries across four distinct time periods, we find that the level of economic regulation is a major determinant of the extent of FDI inflows as well as the level of corruption, but corruption does not have an independent influence on levels of FDI inflows. Our results have important policy implications regarding the role of the state in influencing the location decisions of MNEs.
Keywords Favors . Corruption . Foreign direct investment (FDI) . Endogenous . Systems approach
One way of conceiving favors is to think of them as the pervasive utilization of informal modes of exchange within the formal sector (Lomnitz, 1988). These exchanges vary according to the extent of reciprocity expected by the parties
R. Mudambi (*)
Department of Strategic Management, Fox School of Business, Temple University, Philadelphia, PA 19122, USAe-mail: [email protected]
P. Navarra
Dipartimento di Economia, Universita degli Studi di Messina, Piazza Pugliatti 1, 98100 Messina, Italy e-mail: [email protected]
P. Navarra
CPNSS, London School of Economics, London, UK
A. Delios
Department of Business Policy, National University of Singapore, 15 Law Link, Singapore, Singapore e-mail: [email protected]
Government regulation, corruption, and FDI
488 R. Mudambi et al.
involved. Favors are often seen as a necessary part of business activities, especially in emerging market economies (Myrdal, 1970). Favors can be positive or negative elements of the business environment. On the one hand, favors can facilitate extant business transactions or trigger ones that would not otherwise occur. On the other hand, they can lead to inefficient outcomes, since decisions may not be made based on the underlying capabilities of market participants. This negative aspect is the subject of this paper.
We concentrate our attention on those informal exchanges that involve public decision makers. Therefore, the formal system is the public sector and the decision makers are public bureaucrats. From a...