Corruption and market attractiveness influences on different types of FDI
By: BROUTHERS, Lance Eliot
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Contributor(s): GAO, Yang | MCNICOL, Jason Patrick.
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ArticlePublisher: Chichester, UK : John Wiley, June 2008Strategic Management Journal 29, 6, p. 673-680Abstract: Previous studies have proposed that a compensatory model predicts the level of foreign direct investment (FDI) in a country; FDI levels are a result of trade-offs between the positive effect of market attractiveness and the negative influence of corruption. In contrast, we hypothesize and find that the compensatory relationship only holds for market-seeking investment; for resource-seeking FDI the model appears to be noncompensatory. Greater market attractiveness mitigates the negative impact of corruption on market-seeking investment, but the ability of market attractiveness to mitigate the negative impact of corruption on resource-seeking FDI quickly disappears as corruption levels increase. Implications and future research directions are discussed
Previous studies have proposed that a compensatory model predicts the level of foreign direct investment (FDI) in a country; FDI levels are a result of trade-offs between the positive effect of market attractiveness and the negative influence of corruption. In contrast, we hypothesize and find that the compensatory relationship only holds for market-seeking investment; for resource-seeking FDI the model appears to be noncompensatory. Greater market attractiveness mitigates the negative impact of corruption on market-seeking investment, but the ability of market attractiveness to mitigate the negative impact of corruption on resource-seeking FDI quickly disappears as corruption levels increase. Implications and future research directions are discussed
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