Corruption and Foreign Direct Investment: The Moderating Effect of Bilateral Tax Treaties
Empirical research on the relationship between corruption and foreign direct investment (FDI) remains inconclusive as some found evidence of negative effects of corruption on FDI while others fail to find such effects. Interestingly, countries are increasingly entering into bilateral tax treaties in order to promote FDI. This paper contributes to the literature by simultaneously including corruption and tax treaties as likely determinants of FDI and determining the moderating role tax treaties plays in corruption’s impact on FDI. Using a cross sectional country-level data, we find that corruption perception has a statistically significant negative effect and cumulative bilateral tax treaties a positive effect on inward stock of FDI. Further, the marginal effect of corruption perception is moderated by number of treaties in place.
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