Oregon State University
Abstract: In this paper the authors examine the relationship between local corruption and multinational investment. They construct a model of regulatory capture that highlights the interaction between a corrupt regulator, a local dominant firm and a multinational firm. The model suggests that entry by a multinational could have a variety of effects or corruption, both positive and negative. These include: decreasing corruption and regulatory distortion by reducing available rents and diluting incentives for paying bribes; increasing corruption and regulatory distortion by creating “competition” for regulatory bias; and increasing corruption while reducing distortion through dissipative competition for the regulator.