Deception, corruption and 'schizophrenia' in an incomplete-information model of foreign direct investment

Not all potential investors are equally discouraged by host country corruption. Some investors may actually benefit from it, especially if deception as to the true value of their investments is possible. A model is presented and tested with data for Latin America's top seven hosts and top eight sources of foreign direct investment. In general, FDI is not affected by host corruption, but sometimes it responds (mostly negatively) to the gap between the corruption indices of source and host and, to a lesser extent, to the gap in degrees of economic freedom. There is substantial heterogeneity among source countries.