Reviewed by Hari Patel
Many studies have found a significant negative correlation between the levels of bribery in a country and inflows of foreign direct investment (FDI) that it attracts. However, in his paper “The Markey for Bribes: Does a High ‘Return on Bribery’ Help Countries Attract FDI,” Mohammad Zuhad Hai offers a more nuanced and detailed analysis of the relationship between corruption and foreign direct investment. More specifically, Hai analyzes the relationship between a measure of net benefit gained by bribing firms which he calls the return on bribery (ROB) and the observed levels of FDI.
Hai restricts his analysis to U.S. firms that operate overseas, using data directly from cases against US firms accused of violating the the Foreign Corrupt Practices Act (FCPA) by the United States Department of Justice. Using only those cases where specific figures were given for the amount of bribe and the profits gained from bribery, Hai arrives at 49 unique data points for his analysis. Hai creates multiple methods for determining his ROB coefficients, which take into account a variety of factors including government revenue as a percent of GDP, press freedom, and the time it takes for bribes to create policy changes.
Taking into account the numerous other factors that can affect the correlation of ROB and FDI, Hai concludes that the negative relationship between corruption and foreign direct investment is significantly weakened when a country offers higher returns on bribery. Thus, he implies that companies likely perform careful and pragmatic cost benefit analysis when considering the bribery of foreign officials.
This work offers wide ranging implications, not just for prosecutors working to tackle breaches in bribery laws, but also for countries hoping to tackle corruption while maintaining inflow of foreign direct investments. Tackling bribery in the face of powerful, self interested institutions will involve drastically increasing the risks and consequences of engaging in practices which run in contrast to public values.