Asymmetric Effects of Corruption on U.S. Manufacturing FDI: Focused on Horizontal FDI and Vertical FDI

Importance of corruption as one of the determinants explaining FDI movement has been increased. However previous studies evaluating the effect of corruption of the host country on FDI do not distinguish types of FDI. In this study, a difference for FDI is made between two types(horizontal and vertical FDI) of FDI by using the destination market for the sales of the U.S. affiliates. Starting out from the various theories of FDI, this study shows that the impact of corruption can be different, depending on types (horizontal and vertical FDI) of FDI. Using U.S. manufacturing firm level FDI data, this study finds that vertical FDI(measured by affiliates sales back to the U.S.) is deterred by corruption, but horizontal FDI(measured by affiliates local sales) is not.