Đầu tư trực tiếp nước ngoài, tham nhũng và sự phát triển của các ngành dịch vụ công tại các nền kinh tế mới nổi

Nội dung text: Đầu tư trực tiếp nước ngoài, tham nhũng và sự phát triển của các ngành dịch vụ công tại các nền kinh tế mới nổi

1. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 FOREIGN DIRECT INVESTMENT, CORRUPTION AND THE DEVELOPMENT OF PUBLIC SERVICE SECTORS IN EMERGING COUNTRIES ĐẦU TƯ TRỰC TIẾP NƯỚC NGOÀI, THAM NHŨNG VÀ SỰ PHÁT TRIỂN CỦA CÁC NGÀNH DỊCH VỤ CÔNG TẠI CÁC NỀN KINH TẾ MỚI NỔI Loan Quynh Thi Nguyen*, Nghi Huu Phan*, Van Bui Do*, Ngan Kim Thi Tran *National Economics University, School of Politics, Economics and International Relations, University of Reading, Reading, United Kingdom loanntq@neu.edu.vn ABSTRACT The aims of this study is to empirically examine the effect of foreign direct investment (FDI) and corruption on the development of public service sectors in emerging countries. It then investigates whether this relationship is different between two FDI sub-types including greenfield FDI and cross-border M&As. Using a panel database from 10 emerging countries during the period 1996-2015, we first find that FDI strongly and positively contribute to the development of the public service sectors in the recipient nations, except for electricity sector. However, we show that this relationship is depended on the type of FDI modes of entry. Specifically, while greenfield investment is found to have a positive impact on the development of telecommunication and transportation sectors, cross-border M&A has no impact on the development of these two sectors, perhaps because of the distinct differences among three public service sectors. Finally, we document that when taking into account the role of corruption, the study can provide a more in depth insight in to the impact of FDI and its two components on the development of public service sectors. Particularly, we found that at high level of corruption, aggregate FDI might have no influence on all three public service sectors, possibly because the two contrasting effects of corruption and two types of FDI components on the development of public service sectors seems cancel each other out. Keywords: FDI, greenfield Investment, cross-border M&As, corruption, telecommunication, transportation, Electricity. TÓM TẮT Mục đích của nghiên cứu này là nghiên cứu thực nghiệm ảnh hưởng của đầu tư trực tiếp nước ngoài (FDI) và tham nhũng đối với sự phát triển của các ngành dịch vụ công ở các nền kinh tế mới nổi. Bên cạnh đó, nghiên cứu kiểm định xem liệu mối quan hệ này có khác nhau giữa hai hình thức cấu phần của FDI đó là hình thức đầu tư mới (greenfield) và hình thức mua bán và sáp nhập xuyên biên giới (M&As) hay không. Sử dụng bộ dữ liệu bảng từ 10 quốc gia mới nổi trong giai đoạn 1996-2015, kết quả nghiên cứu cho thấy FDI có tác động tích cực đối với sự phát triển của các ngành dịch vụ công tại các quốc gia tiếp nhận đầu tư, ngoại trừ ngành điện. Tuy nhiên, kết quả nghiên cứu cho thấy mối quan hệ này phụ thuộc vào loại hình đầu tư FDI là đầu tư mới hay M&As. Cụ thể, trong khi đầu tư mới có tác động tích cực đến sự phát triển của ngành viễn thông và vận tải, hình thức đầu tư M&As không có tác động đến sự phát triển của hai lĩnh vực này. Nguyên nhân là do sự khác biệt về bản chất của hai hình thức đầu tư cũng như đặc tính riêng biệt của ba lĩnh vực dịch vụ công cộng. Cuối cùng, nghiên cứu chỉ ra rằng việc xem xét vai trò của tham nhũng giúp đánh giá sâu sắc hơn về tác động của FDI và hai thành phần của FDI đối với sự phát triển của các ngành dịch vụ công. Theo đó, ở mức độ tham nhũng cao, tổng vốn FDI có thể không ảnh hưởng đến sự phát triển của ba lĩnh vực dịch vụ công cộng là kết quả của hai chiều tác động trái ngược giữa tham nhũng, hai cấu phần của FDI và sự phát triển của các ngành dịch vụ công đã triệt tiêu lẫn nhau. Từ khóa: FDI, đầu tư mới, M&As, tham nhũng, viễn thông, vận tải, điện. 1. Introduction In a general sense, FDI may contribute to the development of the host country by increasing the stock of knowledge via the spillover effects from FDI investors to local firms and fostering technological growth via the incorporation of new inputs and foreign technologies in the production of the host country. Unfortunately, the empirical literature examining the impacts of FDI on receiving countries reveals rather 372
2. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 mixed and inconclusive outcomes. While a strand of evidence has documented a positive developmental effect of FDI after controlling for specific host country traits (Borensztein et al., 1998; De Mello, 1999; Alfaro et al., 2004; Fortanier, 2007), there are a number of studies indicate opposite outcomes (Saltz, 1992; Mencinger, 2003). Part of the reason may lie in the choice of theoretical framework and the specification of FDI entry modes (i.e. Greenfield and cross-border M&A). Accordingly, on the one hand, greenfield FDI (referring to the establishment of new companies) is generally believed to exert economic- boosting effects on the host countries as it could increase the stock of capital, create employment opportunities, and subsequently facilitate growth (UNCTAD, 2009; Wang and Wong, 2009). On the other hand, M&As (full or partial takeover of companies by foreign investors) is often criticized as a speculative strategy seeking only the arbitrage profits (Kim, 2008) and might not lead to any capital formation and/or productivity enhancement of the host nations (Luu, 2016). It is also worth noting that although there are a lot of studies focusing on the influence of FDI on the development of the host country, it remains very limited work concentrate on the impact of FDI on the development of the public service sectors, leaving it still ambiguous whether and how FDI affects the development of the public service sectors in the recipient nation. As suggested by previous studies, the extent to which FDI may contribute to the host country’s development is dependent on the degree of corruption in that country (Meyer and Nguyen, 2005). Literature on the corruption-FDI nexus (i.e. Hakkala et al., 2008; and Mudambi et al., 2013) has often recognised the possibility that corruption is harmful and a barrier to entry. This is because corruption is not only perceived as an additional tax that directly augments business costs, but also a source of operating inefficiency and uncertainty since bribery is unofficial and (most likely) illegal, meaning that the firm will be vulnerable to losses and unprotected if the corrupt officers do not fulfill their promises. However, another strand of literature by, for example Cuervo-Cazurra (2008) and Barassi and Zhou (2012), suggests a contrasting view that corruption might act as the “grease for the squeaky wheels”, helping to increase market efficiency, reducing the firm’s operating costs, and eventually, allowing MNCs to penetrate the market. Recently, attention has shifted to another important but less explored channel, which is public sector services, particularly in developing countries (Imam et al., 2019; Wren-Lewis, 2015; Estache et al., 2009; Dal Bó and Rossi, 2006; Bergara et al., 1998). The preponderance of evidence from this strand of literature suggests that corruption can inhibit the performance of public goods sectors. For example, in a recent study, Imam et al. (2019) investigate the influence of corruption on electricity sector performance in Sub-Saharan African countries and find that corruption can significantly reduce technical efficiency of the sector and constrain the efforts to increase access to electricity and national income.), while examining the corruption-electricity sector performance linkage in different settings, also captures similar outcomes as Imam et al. (2019). In another strand of literature, Yan and Oum (2014) argue that the cost of providing public goods is affected by corruption of local government since bureaucrats have no strong incentives to pursue mandated tasks under a corrupt environment. Unfortunately, the empirical literature examining the impacts of FDI and corruption on receiving countries reveals rather mixed and inconclusive outcomes, perhaps due to the fact that the aggregated FDI level is in fact comprised of different compositions (i.e. greenfield investment, and cross-border M&As), and the effect of corruption on each of those FDI sub-types could therefore be inherently dissimilar. In practice, MNCs, in dealing with the existing level of corruption in the host country, might choose to adjust their entry mode to either maximise the beneficial effects of bribery or mitigate their exposure to uncertainty and the added costs associated with corruption (Doh et al., 2003; Brouthers et al., 2008; Mudambi et al., 2013). While greenfield FDI (referring to the establishment of new companies) is generally believed to exert economic-boosting effects on the host countries as it could increase the stock of capital, create employment opportunities, and subsequently facilitate growth (UNCTAD, 2009; Wang 373
3. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 and Wong, 2009), M&As (full or partial takeover of companies by foreign investors), on the other hand, is often criticized as a speculative strategy seeking only the arbitrage profits (Kim, 2008) and might not lead to any capital formation and/or productivity enhancement of the host nations (Luu, 2016). The purpose of this research is therefore fill these gaps in the literature by investigating how FDI and corruption could affect the development of public service sectors in emerging countries. By doing this, our research can contribute to the literature in several aspects. First, this is the first empirical research that investigate the impact of FDI on the development of public service sector while explicitly controlling for corruption practice. Second, it will provide a deep insight into this relationship by separating the aggregated inward FDI into its two compositions that are greenfield FDI and cross-border M&As to examine whether there is any different impact between these two factors. Third, this study will provide the first empirical evidence about the relationship between FDI, corruption and public service sectors’ development in emerging countries, which has been neglected recently since much attention so far have been paid in developed countries. Using a panel database from 10 emerging countries during the period 1996-2015, we first find that FDI strongly and positively contribute to the development of the public service sectors in the recipient nations, except for electricity sector. However, we show that this relationship is depended on the type of FDI modes of entry. Specifically, while greenfield investment is found to have a positive impact on the development of telecommunication and transportation sectors, cross-border M&A has no impact on the development of these two sectors, perhaps because of the distinct differences among three public service sectors. Finally, we document that when taking into account the role of corruption, the study can provide a more in depth insight in to the impact of FDI and its two components on the development of public service sectors. Particularly, we found that at high level of corruption, aggregate FDI might have no influence on all three public service sectors, possibly because the two contrasting effects of corruption and two types of FDI components on the development of public service sectors seems cancel each other out. The paper is now proceeded as follow. Section 2 describes the methodology. Section 3 presents and discusses the empirical results. Section 4 provides conclusion and discussion. 2. Methodology 2.1. Model Specification In this section, we investigate how FDI could affect the development of public service sectors in the host country. The standard model takes the following form: (1) Where is the degree of public service sectors’ development in country i at time t and is measured by one of three different sets of indicators, namely transportation, telecommunication, and electricity. As suggested by some previous studies (i.e. Randolph et al., 1996 and Calderón et al., 2015), these three sectors are the most important measures of the degree of development of public service sectors in a country. Specifically, Electricity is calculated as the percentage of households with access to electricity. Telecommunication is defined as total number of telephone lines (fixed and mobile) per 100 people. Transportation is measured as a natural logarithm of total air and rail transportations. Regarding other variables and is the corruption level in each country and will be collected from the Worldwide Governance Indicators provided by the World Bank. FDI is a natural logarithm of total inward FDI. '' = [Urbanisation, Openness, Income, Exchange, Inflation] is the vector of j covariates that often been used in development economic literature and potentially influence the development of public service sectors. Finally, country and year fixed effects ( , respectively) are also captured as in previous models. is the error term. 374
4. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 In order to investigate the impact of two components of FDI on the development of public service sectors in the host country, we adjust model (1) by replacing variable FDI by its two compositions that are greenfield FDI and merger in which is the level of greenfield investment and is measured as the natural logarithm of greenfield FDI in the host country while is the level of cross-border M&A investment and is measured as the natural logarithm of cross-border M&A sales in the host country as follows: (2) (3) 2.2. Sample overview We use a sample of 10 emerging countries between the period of 1996 and 2015. All the data is retrieved and merged from a number of sources including the UNCTAD database and the World Development Indicators database provided by the World Bank. Our final dataset contains of 155 country- year observations of 10 emerging countries over the time period of 1996 to 2015. Descriptive statistics and the correlation matrix between all variables are provided in Table 2 and Table 3 respectively. Table 1: Definitions, measurements and sources of main variables Variable Definition and measurement Source Electricity Percentage of population with access to electricity World Development Indicators to total population database, World Bank Transportation Natural logarithm of total air and rail transportations World Development Indicators database, World Bank Telecommunicati Total telephone lines (fixed and mobile) per 100 World Development Indicators on people database, World Bank FDI Natural logarithm of FDI inflows UNCTAD Merger Natural logarithm of cross-border M&A sales UNCTAD Greenfield Natural logarithm of greenfield FDI UNCTAD Corruption The corruption index provided by the World Bank Worldwide Governance Indicators, World Bank Urbanisation The ratio of urban population to total population World Development Indicators database, World Bank Openness The ratio of trade (exports +imports) to GDP World Development Indicators database, World Bank Income Real per capita income World Development Indicators database, World Bank Exchange The change in real exchange rate World Development Indicators database, World Bank Inflation The inflation rate World Development Indicators database, World Bank 375
5. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Table 2: Summary Statistics Variable Obs Mean Std. Dev. Min Max Telecommunication 220 57.95 46.96 0.968 163.4 Transportation 204 16.40 1.708 7.170 19.89 Electricity 220 82.67 25.07 0.013 100 FDI 215 21.93 1.881 17.10 25.63 Merger 171 21.79 2.043 14.22 24.73 Greenfield 206 59.79 1.841 17.10 25.56 Corruption 187 59.79 15.71 28.78 91.70 Income 220 3100 2841 331.7 10925 Urbanisation 220 46.43 19.33 17.57 87.79 Openness 200 0.835 0.495 0.215 2.204 Inflation 202 8.032 13.04 -9.616 85.73 Exchange 220 2475 5268 0.081 21697 Table 3: Correlation matrix 1 2 3 4 5 6 7 8 9 10 11 12 1. Telecommunication 1 2. Transportation 0.401 1 3. Electricity 0.661 0.268 1 4. FDI 0.367 0.341 0.286 1 5. Merger 0.297 0.195 0.107 0.368 1 6. Greenfield 0.358 0.087 0.296 0.372 0.224 1 7. Corruption -0.312 -0.235 -0.256 -0.163 -0.311 -0.104 1 8. Income 0.67 0.311 0.6 0.309 0.349 0.247 -0.240 1 9. Urbanization 0.544 0.134 0.561 0.103 0.244 0.043 -0.557 0.185 1 10. Openness 0.244 -0.259 0.352 -0.289 -0.237 -0.262 -0.505 0.196 0.301 1 11. Inflation -0.092 -0.076 -0.157 0.049 0.157 0.004 0.268 -0.243 -0.295 -0.325 1 12. Exchange 0.133 -0.175 0.192 -0.138 -0.391 -0.062 0.351 -0.360 -0.411 0.225 0.146 1 3. Empirical Results 3.1. The impact of the aggregated FDI and Corruption on the Development of Public Service Sectors Table 4 reports the estimation results of equation (1) to estimate the relationship between FDI, corruption and the development of public service sectors in recipient countries. Column 1 show the results of the telecommunication as a dependent variable, column 2 reports the regression results when the transportation is used, whereas column 3 depicts the results for electricity sector. Overall, as can be seen from Table 4, the estimated coefficients on FDI are always positive and strongly significant in all three specifications, implying that FDI may contribute positively to the development of public service sectors in the host countries. Our results are, therefore, in line with some prior studies (i.e., Borensztein et al., 1998; De Mello, 1999; Alfaro et al., 2004 and Fortanier, 2007). Accordingly, this positive relationship can be explained by the fact that FDI has increased the stock of 376
6. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 knowledge of the host country via the spillover effects from FDI investors to local firms and fostered technological growth via the incorporation of new inputs and foreign technologies in the production of the host country. In addition, since FDI investors can provide a large amount of capital for the recipient country, these countries can use this money to improve their telecommunication, transportation and electricity system to better serve the society. In terms of the relationship between corruption and the development of public service sectors, the overarching theme that emerges from Table 4 is that corruption has no impact on the development of public service sectors. This finding implies that the influence of corruption might be much more complicated and thus need further in-depth analysis to explore. Regarding other variables, while urbanization, exchange and the level of income are positively associated with all three public service sectors; inflation is found to be negatively linked with telecommunication sector only. Table 4: The impact of the aggregated FDI and corruption on the development of public service sectors in emerging countries (1) (2) (3) VARIABLES Telecommunication Transportation Electricity FDI 6.306 0.135 0.185* (2.494) (0.036) (0.413) Corruption -0.472 -0.005 0.071 (0.264) (0.004) (0.044) Income 0.003 0.005 0.002 (0.002) (0.000) (0.000) Urban 2.237 0.031 0.139* (0.670) (0.010) (0.111) Inflation -0.204 0.001 0.030 (0.190) (0.003) (0.031) Exchange 0.007 0.004 0.003 (0.001) (0.000) (0.000) Openness -23.186 0.723 -1.062 (10.566) (0.152) (1.749) Constant -2.263 3.208 8.765 (9.157) (0.994) (1.444) Year FE YES YES YES Country FE YES YES YES Observations 155 155 155 R-squared 0.915 0.914 0.873 Standard errors in parentheses p<0.01, p<0.05, * p<0.1 377
7. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 3.2. The impact of FDI compositions, Corruption, and the Development of Public Service Sectors Previous empirical works (i.e. Kogut and Singh, 1988; Hennart and Park, 1993; Mayer, 2009; and Gopalan et al., 2017) have suggested that FDI in fact comprises of different components and argued that these two forms of investment may produce differential impacts on the host country due to their differences in nature and thus cannot perfectly substitute for each other. According to the transaction cost theory, MNCs tend to undertake FDI in the form of greenfield investment when they seek to exploit their superior managerial abilities and technical expertise as well as intensify R&D (Chang and Rosenzweig, 2001). In contrast, cross-border M&As are often preferred by MNCs as a way to secure key resources of the domestic countries and acquire product-specific knowledge of the local firms (Chang and Rosenzweig, 2001) because this type of entry mode usually involves the ownership transfer of existing assets and resources from domestic to foreign entities. Therefore, in order to examine whether each type of FDI components could have different impacts on the development of public service sectors in the host country, we replace the variable FDI in the model (1) by the variable Greenfield and variable Merger as in model (2) and (3). The results of these models are then presented in Table 5. Table 5: The impact of FDI compositions, Corruption, and the Development of Public Service Sectors (1) (2) (3) (4) (5) (6) VARIABLES Telecommunication Transportation Electricity Merger 0.701 0.039 -0.153 (1.277) (0.019) (0.204) Greenfield 3.318 0.092 0.434* (2.225) (0.030) (0.362) Corruption 0.072 -0.251 0.002 -0.001 0.070 -0.084 (0.265) (0.269) (0.004) (0.004) (0.042) (0.044) Income -0.003 -0.003 0.000 0.000 -0.002 -0.002 (0.002) (0.002) (0.000) (0.000) (0.000) (0.000) Urban 1.600 1.822 -0.008 -0.038 -0.184 -0.107 (0.742) (0.689) (0.011) (0.009) (0.118) (0.112) Inflation -0.122 -0.117 -0.003 0.002 0.030 0.030 (0.193) (0.198) (0.003) (0.003) (0.031) (0.032) Exchange 0.006 0.006 0.000 0.000 -0.000 -0.000 (0.001) (0.001) (0.000) (0.000) (0.000) (0.000) Openness -14.890 -18.770* 0.423 0.792 -0.239 -1.687 (10.654) (11.306) (0.160) (0.153) (1.699) (1.841) Constant -63.133 -140.580 15.495 14.521 95.426 83.814 (45.754) (58.646) (0.687) (0.795) (7.295) (9.549) Year FE YES YES YES YES YES YES 378
8. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Country FE YES YES YES YES YES YES Observations 137 150 137 150 137 150 R-squared 0.909 0.914 0.906 0.922 0.875 0.870 Standard errors in parentheses p<0.01, p<0.05, * p<0.1 The results from Table 5 show that greenfield investment has a positive influence on the development of all three types of public service sectors since the coefficients of Greenfield are positive and significant in all three models (2)-(4)-(6). Our results therefore lend supports for the proposition that greenfield investment can exert economic-boosting effects on the host countries as it could increase the stock of capital, create employment opportunities, and subsequently facilitate growth (UNCTAD, 2009; Wang and Wong, 2009). In contrast, since the coefficients of Merger are insignificant in all specifications, ours findings imply that FDI in the form of cross-border M&A exert no impact on the development of public service sectors in the host countries. This results can be explained by the fact that since M&As (full or partial takeover of companies by foreign investors), is often criticized as a speculative strategy seeking only the arbitrage profits (Kim, 2008), it might not lead to any capital formation and/or productivity enhancement of the host nations. With regard to the impact of corruption on the development of public service sectors, our results from all specifications reinforces the findings noted earlier that regardless of the type of FDI are taken into account, corruption always insignificantly. However since the signs of corruption are contrasting between two forms of investment, it suggests that corruption might somehow have different impacts. 3.3. Interactive analysis The level of corruption in the host country has increasingly been introduced as one of the most important factors affecting the location of FDI investors. From a theoretical perspective, corruption, which is paying bribes to corrupt government bureaucrats in exchange for favors, such as permits, investment licenses, tax assessments, and police protection, is generally viewed as an additional cost of doing business or a tax on profit. Consequently, corruption could decrease the expected profitability of an investment project (Bardhan, 1997). Furthermore, corruption is also believed to deter investment and economic growth (Mauro, 1995), lower the quality of infrastructure and the productivity of public investment (Tanzi and Davoodi, 1997), deteriorate health care and education services (Gupta et al., 2000), and increase income inequality (Li et al., 2000). Investor will, therefore, take the level of corruption in the host countries into consideration in making investment decisions abroad. However, the positive effects of corruption on FDI inflows are also witnessed. In the presence of rigid regulation and an inefficient bureaucracy, corruption may increase bureaucratic efficiency by speeding up the process of decision making (Bardhan, 1997). However, it is worth noting that, even though corruption may hinder the inflows of FDI into host countries, the joint effects of FDI and the level of corruption on the development of host countries are comparatively complicated. Surprisingly, some countries with high levels of both corruption and FDI inflows still achieve high level of economic development. For example, Cambodia is a telling case study. In 2007, the net inflows of FDI to this country reached 10.38% as a share of gross domestic product (GDP), higher than the world average. Simultaneously, Cambodia is also ranked as one of the most corrupt country in the world by Transparency International, with a corruption index of 2.0 out of 10 in 2007. Despite that, Cambodia has achieved a remarkable rate of economic growth over the last few years. Its per capita GDP growth in 2007 was record high of 8.3%. This achievement is attributed to several factors, among which FDI is undoubtedly significant. 379
9. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Inspired by this fact, this study will further explore the real impact of corruption on the development of public service sectors in emerging countries despite the fact that corruption is found to have no impact as seen in previous sections. In order to do this, we include into our model the interaction terms between corruption and FDI and its two components. Information about corruption in each country will be collected from the Worldwide Governance Indicators provided by the World Bank. The regression results are provided in Table 6 as follows: Table 6: The joint impact of FDI and corruption on the development of public service sectors in emerging countries (1) (2) (3) (4) (5) (6) (7) (8) (9) VARIABLES Telecommunication Transportation Electricity FDI 6.962 -0.126 3.785 (7.469) (0.104) (1.186) Merger -2.517 -0.071 1.021 (4.741) (0.070) (0.748) Greenfield 4.958* 0.072* 2.653 (7.931) (0.107) (1.280) Corruption 0.676 -0.962 -2.586 -0.076 -0.038 -0.055 1.051 0.308 0.677 (2.208) (1.490) (2.623) (0.031) (0.022) (0.035) (0.351) (0.235) (0.423) Corruption_FDI -0.009 0.004 -0.052 (0.101) (0.001) (0.016) Corruption 0.050 0.002 0.018 _Merger (0.071) (0.001) (0.011) Corruption -0.132 -0.003 -0.035 _Greenfield (0.121) (0.002) (0.020) Income -0.004 -0.002 -0.001 0.000 0.000* 0.000 -0.003 -0.002 -0.002 (0.003) (0.002) (0.003) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) Urban 2.264 1.483* 1.597 -0.042 -0.012 -0.043 0.010 -0.141 -0.047 (0.732) (0.762) (0.719) (0.010) (0.011) (0.010) (0.116) (0.120) (0.116) Inflation -0.204 -0.141 -0.109 0.001 -0.004 0.003 0.032 0.037 0.028 (0.191) (0.195) (0.198) (0.003) (0.003) (0.003) (0.030) (0.031) (0.032) Exchange 0.006 0.006 0.006 0.000 0.000 0.000 -0.000 -0.000 -0.000 (0.001) (0.001) (0.001) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) Openness -23.443 -13.939 -17.540 0.825 0.456 0.816 -2.471 -0.586 -2.017 (10.961) (10.765) (11.353) (0.153) (0.160) (0.153) (1.741) (1.699) (1.832) Constant -2.243 1.269 3.337 1.170 1.880 1.183 1.526 7.097 3.504 (1.111) (1.597) (1.022) (2.448) (1.613) (2.411) (2.811) (1.137) (28.894) Year FE YES YES YES YES YES YES YES YES YES 380
10. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Country FE YES YES YES YES YES YES YES YES YES Observations 155 137 150 155 137 150 155 137 150 R-squared 0.915 0.909 0.915 0.919 0.908 0.923 0.883 0.878 0.874 Standard errors in parentheses p<0.01, p<0.05, * p<0.1 As can be seen from Table 6, the estimated coefficients on the interaction terms Corruption_FDI remain unchanged that corruption has no significant influence on the development of the host countries. However, it is very interesting to see that this impact turns out to be significant and different when its interaction terms with Greenfield and Merger are taken into account. Specifically, on the one hand, the coefficients on the interaction terms Corruption_Merger are positive and significant in the Telecommunication and Transportation model, while they are both insignificant in two models of Electricity. The possible reason for this is that market penetration through cross-border M&As are more likely to occur in countries that have high corruption levels because it enables investors to reduce the costs arising from unnecessary tangled procedures and mitigate the opportunistic behavior risk. In addition, since cross-border M&As involves the ownership transfer of existing assets and resources from domestic to foreign entities, this entry mode could allow foreign investors to faster market entry, obtain immediate access to local resources, inherit the long-lasting relationships with domestic government authorities from their target firms, and ultimately could foster the development of public service sectors in the host countries (Meyer and Estrin, 2001). On the other hand, the coefficients on the interaction terms Corruption_Greenfield are found to be positively and significantly associated with Telecommunication and Transportation sector but insignificantly linked with Electricity sector. Our findings therefore show that at high level of corruption, FDI activities in the form of greenfield investment can deter the development of telecommunication and transportation sector in recipient countries, but have no developmental impact in electricity sector. This results suggest that although greenfield investment might have a positive influence on the development of public service sectors in the host countries, in a high corrupt environment, they contribute no developmental value since foreign investors have to spend a large amount of money to deal with corruption, which directly increase their operating costs and risks and subsequently reduce their performance as well as the amount of investment in the host country. As a consequence, they have little or no developmental impact on the development of public service sectors in recipient countries (Bardhan, 1997; Tanzi and Davoodi, 1997; Gupta et al., 2000; and Li et al., 2000). Overall, it appears that these two contrasting effects of corruption and two types of FDI components on the development of public service sectors come close to cancelling each other out, leading to the impact of corruption and aggregated FDI turns out insignificant regardless of different types of sectors are examined. More interesting, the insignificant impacts of FDI, greenfield FDI, cross-border M&As and corruption on the development of electricity sector suggest that there remain several distinct differences among these three public service sectors. Specifically, since electricity sector is often recognized as having high state ownership and intervention, low competition and strong monopoly power, FDI flow in this sector may exhibit no impact because it is very hard for foreign investors to expedite market entry, obtain scare resources as well as important licenses. By contrast, telecommunication and transportation sectors have become increasingly competitive markets and attracted greatest amount of FDI thanks to technological changes, regulatory innovations and the quick removal of their monopoly status. In this respect, FDI investors have more opportunities to operate in telecommunication and transportation sectors and thus they could have a positive impact on the development of these two sectors. 381
11. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 4. Conclusion and discussion The main purpose of this study is to empirically investigate the effect of foreign direct investment (FDI) and corruption on the development of public service sectors in recipient nations. It further investigate the effect of two FDI sub-types and corruption on the development of public service facilities in emerging countries. Using a panel database from 10 emerging countries between 1996 and 2015, we first find that FDI strongly and positively contribute to the development of the public service sectors in the recipient nations, except for electricity sector. We further find that while greenfield investment has a positive influence on the development of telecommunication and transportation sectors, cross-border M&A has no impact on the development of these two sectors, possibly due to their differences in nature and thus, they may produce different impacts on the host country. We also document that when taking into account the role of corruption, the study can provide a more in depth insight in to the impact of FDI and its two components. We found that at a high level of corruption, aggregate FDI might have no influence on all three public service sectors, possibly because the two contrasting effects of corruption and two types of FDI components on the development of public service sectors seems cancelling each other out. Taken together, our study may contribute to the literature by providing evidence that since the modes of entry are different in nature, they can have different influences on the development of public service sectors. This findings therefore suggest that policy makers when building their strategy to attract FDI should take the modes of entry into consideration since only FDI investment in the form of greenfield can have a positive impact on the recipient countries. However, in order to benefit more from FDI activities, emerging countries need to control the level of corruption because in a high corrupt environment, greenfield investment might contribute no developmental impact on the host countries. In addition, the different impact of FDI among three public service sectors also imply that foreign investors should specialize on the types of sector that they possess expertise and experience in terms of technology and experts (i.e., telecommunication) and be wary of entering sectors that continue to be very government-dependent (i.e., electricity) to reduce the risk that host governments will renege projects. REFERENCE [1] Aidt, T., (2003). Economic analysis of corruption: a survey. The Economic Journal, 113, 632–652. [2] Alfaro, L., Chanda, A., Kalemli-Ozcan, S. and Sayek, S. (2004). FDI and economic growth: The role of local financial markets. Journal of International Economics, 64(1), 89–112. [3] Barassi, M.R. and Zhou, Y., 2012. The impact of corruption on FDI: A parametric and nonparametric analysis. European Journal of Political Economy, 28(3), pp.302–312. [4] Bardhan, P., 1997. Corruption and Development: A Review of Issues. Journal of Economic Literature, 35(3), pp.1320-1346. [5] Bergara, M.E., Henisz, W.J., Spiller, P.T., (1998). Political institutions and electric utility investment: a cross-nation analysis. Program on Workable Energy Regulation (POWER). California Management Review, 40(2), 18–35. [6] Borensztein, E., De-Gregorio, J. and Lee, J.-W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135. [7] Brouthers, L.E. Gao, Y. and McNicol, J.P., 2008. Corruption and market attractiveness influences on different types of FDI. Strategic Management Journal, 29(6), pp.673-680. [8] Cai, H., Fang, H., Xu, L.C., (2009). Eat, drink, firms and government: an investigation of corruption from entertainment expenditures of Chinese firms. Journal of Law and Economics, 54, 55–78. [9] Calderón, C. and Servén, L., 2010. Infrastructure and Economic Development in Sub-Saharan Africa. Journal of African Economies, 19(1), pp.13-89. 382
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