Academic journal article Business: Theory and Practice

Corruption Effect on Foreign Direct Investments in European Union Countries

Academic journal article Business: Theory and Practice

Corruption Effect on Foreign Direct Investments in European Union Countries

Article excerpt

Abstract

The authors of the article analyze the effect of corruption on foreign direct investments in most corrupt European Union countries. Corruption in the context of the analysis is understood as an act where government officials enter into an agreement with a foreign investors against the interest of society. It takes place when illegal payments for government are made. Such payments acts as an additional tax on investments in foreign country, thus decreasing attractiveness of investment for foreign investors. There are various types of corruption, but most common classification include grand corruption, petty corruption and public sector corruption. However, this article focuses on the effect of grand corruption, because it directly affects FDI inflows in particular country. Results of the research made by the authors shows that corruption has adverse effect on FDI inflows, however particular corrupt actions may postively effect FDI inflows. In order to determine corruption effect on FDI in corrupt EU countries statistical analysis of 2000-2014 period has been implemented and conceptual model of effect on FDI created.

Santrauka

Straipsnyje autoriai nagrineja korupcijos itaka tiesioginems uzsienio investicijoms labiausiai korumpuotose Europos Sajungos salyse. Sio tyrimo kontekste korupcija apibreziama kaip jvykis, kai valdininkas pasiekia susitarima su uzsienio investuotoju prioriteta suteikdamas savo asmeniniams, bet ne visuomenes interesams. Korupcija vyksta, kai atliekami nelegalus mokejimai valdininkui uz paslauga. Jie uzsienio investuotojams reiskia papildomus kastus ir tai mazina salies patraukluma uzsienio investicijoms. Mokslineje literaturoje korupcija skaidoma i ivairius tipus, taciau dazniausiai tiriama didzioji korupcija, smulkioji korupcija bei viesojo sektoriaus korupcija. Siame straipsnyje analizuojamas didziosios korupcijos daromas poveikis, nes ji tiesiogiai veikia tiesiogines uzsienio investicijas. Autoriu atliktas tyrimas parode, kad korupcija daro neigiama poveiki TUI lygiui salyje, taciau tam tikri korupciniai veiksniai gali ir paskatinti TUI. Siekiant ivertinti koki poveiki korupcija daro tiesioginems uzsienio investicijoms Europos Sajungos salyse buvo atlikta 2000-2014 metu periodo statistine analize ir sukurtas korupcijos poveikio TUI konceptualus modelis.

Keywords

foreign direct investment corruption grand corruption corrupt countries European Union

Reiksminiai zodziai

tiesiogines uzsienio investicijos korupcija didzioji korupcija korumpuotos salys Europos Sajunga

JEL Classification

D73, F21, F23, H54

Introduction

In the 1990s new European Union member states signed bilateral agreements, which liberalized 85% of trade between the two blocks and therefore since the mid-1990s, the number of foreign firms and the stock of foreign direct investment (FDI) have risen sharply in the new Member States (European Union Communication from the Commission to the Council 2006). Multiple researches have been conducted by scholars and scientists, as this growth led to analysis of foreign direct investment determinants. It is seen that multiple indicators can cause fluctuations of foreign direct investments. However, only recently corruption has been introduced as one of the focal determinants of FDI inflows. It may not only directly influence changes of FDI, but may also affect economic growth, unemployment (Vojtovic and Krajnakova 2013) or other economic variables, which subsequently may lower the inflows of FDI. Though, in the context of this article, direct effect of corruption on FDI is being analysed, rather than corruption effect on multiple economic indicators.

The problem and novelty of the study. From the beginning of political economy science, corruption has been seen as a major issue and multiple scientists have analysed it in their researches. Multiple articles exist about corruption effect on economic growth, distortion of free market or other economic factors. …

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