TY  - JOUR
AU  - Smarzynska,Beata K.
AU  - Wei,Shang-Jin
TI  - Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7969
PY  - 2000
Y2  - October 2000
UR  - http://www.nber.org/papers/w7969
L1  - http://www.nber.org/papers/w7969.pdf
N1  - Author contact info:
Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu
AB  - This paper studies the impact of corruption in a host country on foreign investor's preference for a joint venture versus a wholly-owned subsidiary. There is a basic trade-off in using local partners. On the one hand, corruption makes local bureaucracy less transparent and increases the value of using a local partner to cut through the bureaucratic maze. On the other hand, corruption decreases the effective protection of investor's intangible assets and lowers the probability that disputes between foreign and domestic partners will be adjudicated fairly, which reduces the value of having a local partner. The importance of protecting intangible assets increases with investor's technological sophistication, which tilts the preference away from joint ventures in a corrupt country. Empirical tests of the hypothesis on a firm-level data set show that corruption reduces inward FDI and shifts the ownership structure towards joint ventures. Technologically more advanced firms are found to be less likely to engage in joint ventures.
ER  -