Two Essays on Corruption, FDI, and Digitalization

Corruption is detrimental to both society and economy and is yet prevalent in many countries. Thus, research in this field is imperative to help alleviate the problem. Drawing on institutional theory and eclectic paradigm, this dissertation seeks to first, delineate the mechanisms through which corruption influences economic decision-making, and second, identify its root causes and tools for controlling it. This dissertation’s central research question is addressed in two essays. Essay 1 builds on insights from research on corruption in international business to advance our understanding of how perception of bribery in foreign markets shapes investment behaviors. The literature is dominated by two views arguing for the adverse effect of corruption in the host and corruption differences between home and host markets on inward FDI. To shift the focus to investors’ perspective, we develop a framework with distinctions between low and highly corrupt countries to evaluate their firms’ responses to transparent and corrupt environments abroad reflected in their outward foreign investments. Applying a dynamic gravity model to a panel data on bilateral FDI among 36 OECD countries, we find that low-corruption sources of investment are deterred by widespread bribery in foreign markets and tend to commit more resources to clean environments. However, the results suggest that highly corrupt countries invest more heavily in high-corruption target markets, supporting the corruption distance perspective. Additionally, understanding the causes of corruption is a prerequisite step for tackling it effectively in an international business context. As such, Essay 2 is dedicated to investigating a rather neglected factor in the literature, that is, digitalization across countries. While ICT tools can help prevent bribery by improving public scrutiny, they may also be used to create new corruption opportunities. Accordingly, we argue that the effect of digitalization on corruption is conditioned by different governance environments. While digital tools contribute to the fight against bribery in rule-based economies, they facilitate corruptive practices in relation-based countries. A panel data analysis on 82 countries over a 9-year period from 2012 to 2020 supports our arguments and confirms the context-specific nature of digital transformation and its discrepant implications for different societies