Effect of perception of corruption on outward US Foreign Direct Investment

Abstract

US Foreign Direct Investment (FDI) outflows are examined with respect to the level of corruption – in the form of bribery – in 42 recipient countries over a five-year period. Analysis indicates that US firms are less likely to invest in countries where bribery, as measured by the Corruption Perceptions Index (CPI), is widespread. However, the size of the foreign market is found to be a more robust factor determining US outward investment, with larger economies attracting more investment. The level of bribery, while significant by itself, loses its importance when included with other economic and cultural variables. The findings are discussed in the context of the Foreign Corrupt Practices Act (FCPA), which makes it illegal for US firms to bribe foreign officials to obtain business advantages.