The Impact of Transparency on Foreign Direct Investment

By Z. Drabek, Warren S. Payne. 2002

265 citations recorded by the source corpus.

Non-transparency is a term given in this paper to a set of government policies that increase the risk and uncertainty faced by economic actors foreign investors. This increase in risk and uncertainty stems from the presence of bribery and corruption, unstable economic policies, weak and poorly enforced property rights, and inefficient government institutions. Our empirical analysis shows that the degree of non-transparency is an important factor in a country's attractiveness to foreign investors. High levels of non-transparency can greatly retard the amount of foreign investment that a country might otherwise expect. The simulation exercise presented in the statistical part of this paper reveals that on average a country could expect 40 percent increase in FDI from a one point increase in their transparency ranking. Pari passu, non-transparent policies translate into lower levels of FDI and hence lower levels of welfare and efficiency in the host country's economy. A nation that takes steps to increase the degree of transparency in its policies and institutions could expect significant increases in the level of foreign investment into their country. This increased investment translates into more resources, which in turn increases social welfare and economic efficiency.

Subfields: Development, Information Systems, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/9b5dc121155408d9a003e9d5794f8bf27d2828f1

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Citations in the corpus

Corruption and Human Development (2006, background): “Examining the impact of corruption on foreign direct investment (FDI), Wei (2000), Drabek and Payne (1999), and Habib and Zurawicki (2001) find that corruption is a deterrent factor for foreign investors.”
The impact of institutional quality on foreign direct investment inflows: evidence for developed and developing countries (2018, background): “Law and order become a serious issue for M.N.C.s when courts fail to enforce contracts and when the government influences court decisions for political motives (Drabek & Payne, 2002).”
Cross-border takeovers, corruption, and related aspects of governance (2006, background): “However, this one-dimensional impact is not warranted as the secretive nature of corruption adds significant uncertainty to the returns of local investments (Pellegrini and Gerlagh, 2004; Drabek and Payne, 2002; Rodriguez et al., 2005).”
Transparenting Transparency: Intial Empirics and Policy Applications (2005, unknown): “10 For example, Drabek and Payne (2002) take the Transparency index of the Country Risk Guide published monthly by Political Risk Services (PRS) to assess the impact of transparency on FDI.”
Information Environment and the Investment Decisions of Multinational Corporations (2013, background): “For example, Durnev and Mangen (2009) show that a firm’s past misreporting activities (proxied by restatement announcements) affects competitors’ past investment decisions.”
The impact of bilateral investment treaties on foreign direct investment (2004, background): “Drabek and Payne (2002)considers the importance of the risk of expropriation.”
The effect of corruption on FDI:a parametric and non-parametric analysis (2012, background): “This argument is supported by the empirical studies of Wei (2000a, 2000b), Drabek and Payne (2001), Habib and Zurawicki (2002), Javorcik and Wei (2009), Egger and Winner (2006) Busse and Hefeker (2007) and Hakkala et al. (2008) for both developed and developing countries.”