Trading Up or Trading Down? How Home Country Corruption Affects Cross-Border R&D Investments

Maximilian von Zedtwitz, Severin Friedrich Bischof

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Prior research has demonstrated that corruption has largely negative effects on incoming international investments. What is less clear, however, is to what extent these negative effects are a product not of a host country’s absolute level of corruption, but of the relative distance to the home country’s degree of corruption. We define the Directional Corruption Distance (DCD) as the arithmetic difference between two countries’ corruption levels. Avoiding distorted FDI measures, we analyze the change in Research & Development Stock (RDS) representing more than 10,000 R&D centers of 500 technology-intensive MNCs taken from the Fortune 1000 list. Qualifying earlier research employing FDI as a dependent variable, we observe that countries of lower corruption are preferred destinations (Trading Up Hypothesis), but only under certain conditions. We further show that developed countries with lower degrees of corruption tend to prefer investments in other low-corruption countries (Comfort Hypothesis). High- corruption countries, conversely, do not exhibit this behavior and appear more open towards investment in other high-corruption countries (Familiarity Hypothesis). These findings underscore the influence of contextualizing variables in the origin of investments, and suggest extended research using firm-level field data to compensate for potential bias and flaws in FDI data.
Original languageEnglish
Title of host publicationProceedings of the Eightieth Annual Meeting of the Academy of Management
EditorsGuclu Atinc
Number of pages1
Place of PublicationBriarcliff Manor, NY
PublisherAcademy of Management
Publication date2020
Publication statusPublished - 2020
EventThe Academy of Management Annual Meeting 2020: Broadening Our Sight - Virtual
Duration: 7 Aug 202011 Aug 2020
Conference number: 80


ConferenceThe Academy of Management Annual Meeting 2020
Internet address
SeriesAcademy of Management Proceedings

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