Norwegian School of Economics, Department of Economics
Doi
Abstract
An increasing share of world FDI is carried out by multinationals
from developing countries. These investors may have objectives and
constraints that differ from their developed country counterparts. In
this paper we focus on differences in attitudes to corruption, and how
these may shape the competition for the right to extract resources in a
developing country context. We show how differences in the investors
level of technology and differences in the host country government's
trade-off between bribes and taxes determine who wins the competition for the resource and the winning price. We find that the entry of
a corrupt investor may induce the honest investor to offer bribes instead of taxes. Surprisingly, however, our analysis also demonstrates
that under some conditions, the entry of a corrupt investor may in fact induce the honest investor to increase its tax payments
