Greed, Corruption, and the Modern State

Greed, Corruption, and the Modern State

Essays in Political Economy

Edited by Susan Rose-Ackerman and Paul Lagunes

What makes the control of corruption so difficult and contested? Drawing on the insights of political science, economics and law, the expert contributors to this book offer diverse perspectives. One group of chapters explores the nature of corruption in democracies and autocracies, and “reforms” that are mere facades. Other contributions examine corruption in infrastructure, tax collection, cross-border trade, and military procurement. Case studies from various regions – such as China, Peru, South Africa and New York City – anchor the analysis with real-world situations. The book pays particular attention to corruption involving international business and the domestic regulation of foreign bribery.

Chapter 9: A corruption, military procurement and FDI nexus?

Nancy Hite-Rubin

Subjects: economics and finance, economic crime and corruption, law - academic, corruption and economic crime, politics and public policy, public policy

Extract

Corruption in military procurement is a very serious problem (see, for example, Willett 2009; Auriol 2006; Gupta, de Mello and Sharan 2001), particularly for developing economies that have experienced the greatest increase in military spending since the Cold War. Corruption of any form arguably stifles economic development. Yet, a recent paper by Daniel Drezner and Nancy Hite Rubin (2014) provides a possible refutation of this notion. In their global analysis of post Cold War military spending, they find that countries that are perceived to be corrupt actually attract more foreign direct investment (FDI) when they spend more on their military. The authors attribute their robust empirical finding to the geoeconomic favoritism hypothesis. This is the idea that military spending signals to foreign investors that FDI property rights are more secure. Could it also be the case that military procurement, a key component of military spending, stimulates FDI? Drezner and Hite Rubin’s finding that military spending attracts foreign capital only into corrupt economies is worth further discussion. In this chapter, I explore the relationship between corruption and FDI with an emphasis on how corruption may play a role in arms procurement. I build from Drezner and Hite Rubin’s previous finding that aggregate military spending leads to higher FDI, and look more closely at the relationship between major arms transfers and subsequent FDI in corrupt states.

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