Foreign Direct Investments and
Corruption
The impact of corruption on
foreign investments and trade

Prague, 31 October 2005
Jeppe Kromann Hansen
Introduction
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Subjects:
• Measuring corruption
• FDI (Foreign Direct
Investments) and corruption
• Cases:
– (Denmark)
– Czech Republic
– Russia
Introduction
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Jeppe Kromann Hansen
• MA Pol Sci, Pol Eco
• Consultant, Rambøll Management
• Public administration reform, anticorruption, good governance
• Board member, Transparency
International Denmark
Measuring corruption
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Transparency International
• International NGO fighting corruption
• Mainstreaming of corruption as an
international issue
• National chapters
• Indexes, conferences (e.g. IACC),
research etc.
Measuring corruption
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Corruption Perception Index (CPI):
• Based on up to 13 other indexes
• Shows only perception of corruption
• Statistical average
• Number of countries growing each
year
• Most cited corruption index
• Politically very important (World
Bank etc.)
• Annually since 1995 (from 41 to 159
countries)
Measuring corruption
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Statistical data
Rank
Score
Measuring corruption
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Measuring corruption
Overview:
Introduction
CPI:
Czech Rep.:
Measuring corruption
•
CPI
•
BPI
Denmark:
2002 2003 2004 2005
3.7 3.9 4.2 4.3
52nd
54th
51st
47th
9.5
9.5
9.5
9.5
2nd
3rd
3rd
4th
2.7
2.7
2.8
2.4
71st
86th
90th
126th
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Russia:
Trends:
• Rich countries – low corruption
• Former Soviet Union – high corruption
Measuring corruption
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
k
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Bribe Payers’ Index (BPI) (only 2002)
• Measures a country’s exporters’ bribepaying abroad
Rank
1
2
4
5
6
8
9
11
Score
Australia
Sweden
Switzerland
Austria
Canada
Netherlands
Belgium
United Kingdom
Singapore
Germany
Spain
8.5
8.4
8.4
8.2
8.1
7.8
7.8
6.9
6.3
6.3
5.8
Rank
12
13
15
17
18
19
20
21
Score
France
United States
Japan
Malaysia
Hong Kong
Italy
South Korea
Taiwan
People’s Republic of China
Russia
Domestic companies
5.5
5.3
5.3
4.3
4.3
4.1
3.9
3.8
3.5
3.2
1.9
Measuring corruption
CPI and BPI
Overview:
(Corruption in-country and abroad)
Introduction
Transparency Internationals CPI (2003) og BPS (2002, justeret)
Measuring corruption
•
CPI
•
BPI
10,0
Australien
Østrig
Sverige
Canada Svejts
Belgien Nederlandene
•
Statistics
Theory
Cases:
•
•
Russia
Czech Republic
2
R = 0,7102
8,0
Tyskland
7,0
BPS just.
•
Corrupt exporters
9,0
FDI and corruption
UK
Singapore
Spanien
Frankrig Japan USA
6,0
Malaysia
Sydkorea
5,0
Rusland
Italien
Kina
Hong Kong
Taiwan
4,0
3,0
Most corrupt
2,0
2,0
3,0
4,0
5,0
6,0
7,0
CPI
Corruption in country
8,0
9,0
10,0
FDI and corruption
Overview:
Foreign investors: Angels or Devils?
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Angel?
Devil?
FDI and corruption
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Corruption and FDI – Statistics
• The higher corruption – the less FDI
• Corruption = tax on foreign firms
– Corruption change:
Singapore (9.4) to Mexico (3.5) =
24% tax increase
• Corruption = insecurity
– Foreign firms more scared by insecurity
FDI and corruption
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
Corruption and FDI – Statistics
• BUT China/South Korea has high
corruption and high FDI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
• AND foreign companies do sometimes
takes advantage of corruption
FDI and corruption
Overview:
Theory of corrupt markets and FDI:
Introduction
Measuring corruption
•
CPI
•
BPI
Type
FDI and corruption
•
Statistics
•
Theory
Active
Practical
Forced
Cases:
•
Russia
•
Czech Republic
Networks
Organisation
Centralised
Decentralised
Problem for
international investors:
Major
Open
Medium
Closed
Minor
FDI and corruption
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Foreign firms & corruption: Examples
Case: Russia
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Basic facts:
 Very low CPI score: 2,4 (126th)
 ~30 bn $ a year
 Everywhere: Traffic police, politicians,
state administration, universities,
courts, hospitals, army (new entry!)
 Changed nature since USSR and from
Yeltsin to Putin
Case: Russia
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Typology:
• Type:
Forced – all officials free to demand
bribes and offer corrupt services
• Organisation:
Decentralised – chaotic; no central
control with collection of bribes
• Networks:
Active corruption occurs mostly in
closed networks, which are opening up
Case: Russia
Overview:
Introduction
Corruption as problem for foreign
companies in Russia:
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
?
?
Case: Czech Republic
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
Corruption in Czech Republic:
• CPI: 3.7 (2002) to 4.3 (2005)
Type?
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Active
Practical
Organisation?
Centralised
Decentralised
Forced
Networks?
Open
Closed
Case: Czech Republic
Overview:
Introduction
Measuring corruption
•
CPI
•
BPI
FDI and corruption
•
Statistics
•
Theory
Cases:
•
Russia
•
Czech Republic
Corruption as problem for foreign
companies in Czech Republic: