Corruption distance and FDI location choice.
Corruption is a complex, multifaceted phenomenon, often functioning as a ‘critical institution’ filling institutional voids. The topic of corruption has attracted widespread attention in economics, management, and international business since the end of the 20th century. Some argue that it negatively affects countries’ economic growth, FDI inflows and distorts the allocation of public spending on healthcare and education. Others believe that corruption can serve as ‘grease’ to the wheel of commerce.
In my thesis, I explored the interlinkages between pervasive corruption (i.e., stable, known) and the location choice MNEs make through applying corruption distance with direction and magnitude to the relationship.
Additionally, I included VUCA conditions dominating our world today – volatility, uncertainty, complexity, and ambiguity. By matching them to the institutional factors – political stability, government effectiveness, policy uncertainty and arbitrary corruption (i.e., unpredictable, unknown); I enhanced the understanding of the effect of institutions on a firm’s location decision in a worldwide contextThis research applied a quantitative approach and analysed 940,485 observations – investments made by 1,113 firms in 169 countries over five years. I chose the Healthcare sector because of its importance in today’s world of epidemics, pandemics and the ageing population. Through the logistic regression analysis, this thesis found that corruption indeed acts as ‘grease’ and attracts firms instead of repulsing them. Moreover, the larger the corruption distance is, the more likely the firms will invest. Additionally, it was found that policy uncertainty has a significantly negative moderating effect on the relationship between corruption distance and FDI location choice.
My research findings contribute to both institutional theory and location choice literature by answering the puzzling question of the true nature of the relationship between corruption and FDI location choice. My research also contributes to the literature incorporating VUCA dimensions. It emphasises the importance of including them in any modern study focusing on current global issues and the ever-changing environment increasingly affected by VUCA factors.