WHEN IT RAINS, IT POURS: FOREIGN DIRECT INVESTMENT AND PROVINCIAL CORRUPTION IN VIETNAM

Abstract

Does foreign direct investment (FDI) promote or hinder good governance in a host state? In this article, I analyze the effects of FDI on subnational-level corruption across 63 provinces in Vietnam and find that FDI has both promoted and hindered control of corruption. Initially, FDI creates resources and incentives to improve governance and reduce corruption for early winner provinces. Yet, once FDI begins to pour in, different dynamics start to take effect. While the resources and incentives accrued to FDI-recipient provinces become less effective in further curbing corruption as more FDI flows in, FDI provides leaders of those provinces with growing opportunities and increased abilities to seek and pursue rents, leading to a prevalence of corruption. Using both qualitative and quantitative data, I find strong evidence that the control of corruption is weakest at the extremes: in provinces with the least and the most FDI.