Monopoly Money : Foreign Investment and Bribery in Vietnam, a Survey Experiment

Prevailing work argues that foreign investment reduces corruption, either by competing down monopoly rents or diffusing best practices of corporate governance. We argue that this theory is too broad-brush and that the empirical work testing it is too heavily drawn from aggregations of total foreign investment entering an economy. Alternatively, we suggest that openness to foreign investment has differential effects on corruption even within the same country and under the same domestic institutions over time. Rather than interpreting bribes solely as a coercive “tax” imposed on business, we argue that foreign firms use bribes to enter protected sectors in search of rents. Thus, we expect variation in bribe propensity across sectors according to expected profitability. We test this effect using a list experiment embedded in three waves of a nationally representative survey of 27,000 foreign and domestic businesses in Vietnam, finding that the effect of economic openness on the probability to engage in bribes is conditional on polices that restrict investment