Transnational Law Enforcement, Corruption, and Foreign Direct Investment

• In Event: Poster Session: Perspectives on Political Economy

Abstract

Transnational anti-bribery law enforcement is on the rise, but there has been little empirical work examining the impact of this emerging legal norm. This paper uses an original dataset on the enforcement actions of the Foreign Corrupt Practices Act (FCPA) to examine the law's impact on political risks faced by multinational enterprises and the responsive corporate behavior. I argue that transnational law enforcement provides a form of institutional subsidy to developing countries that lack robust legal regimes. I find that FCPA enforcement discourages actors on both ends of corrupt exchanges: host government officials who receive bribes and MNCs who offer bribes. However, external enforcement only raises the costs and the threshold of engaging in misconduct. Firms are pressured to pursue more lucrative business deals as risk premiums, and firms that cannot sustain corrupt arrangements lose rent-seeking opportunities. This paper has important implications for the promotion of global rule of law and global governance, especially regarding emerging economies.

Author

• Jian Xu, emory university