How does the globalization of firms affect corruption in developing economies?

The purpose of this paper is to examine how firms’ characteristics related to globalization affect their perception on corruption and actual experiences in bribery. It focuses on two indicators of globalization, namely, foreign ownership and export, and confines the scope to developing economies.

This analysis uses firm-level data with observation over 60,000 collected from 94 developing economies. The paper employs the probit model to examine how firm characteristics related to globalization affect corruption perception (CP) and incidence.

The empirical results reveal that for foreign-invested companies, there is a substantial discrepancy between the perceived corruption and the actual. Although they are involved in bribery as frequently as, or less frequently than local firms, they have greater CPs. Exporting firms are more frequently solicited for bribes, but the effect disappears when time spent for government contact is controlled for. Consequently, foreign investment partly contributes to the corruption control, but the export orientation of firms rather aggravates corruption due to regulative environments in developing economies.

This study provides policy implications that the corruption control through globalization requires streamlining of administration procedure related to foreign investment or trade and, thus, shortening time to deal with public officials. In addition, governments need to emphasize the importance of foreign investment and prevent unethical practices mediated by local partners.

The greatest novelty of this paper lies in using firm level data instead of country level unlike most of the literature. Moreover, the authors focus on firms only in developing economies. As well, unlike most studies using only perception indicators as the proxy of corruption, this paper considers both CPs and actual incidence, and compares each other.