This month's featured article
FCPA and Market Quality in Emerging Economies
Krishnendu Ghosh DASTIDARJawaharlal Nehru University
YANO MakotoChairman, RIETI
In emerging economies, transitioning from a traditional economy to a modern market economy, many economic impediments have existed since the pre-modern days. Examples are state-sanctioned monopolies and entry restrictions. These countries traditionally had incompetent and corrupt bureaucracies, which required businesses to deal with enormous amounts of red tape. In such economies, "political contributions," more negatively put, "bribes" often effective tools to reduce economic impediments.
Even today, this feature exists and doing any kind of business without bribery in these countries is extremely diffiult and this poses a significant legal and economic risk for corporations operating in these countries. The Foreign Corrupt Practices Act (FCPA) is an American act enacted in 1977 to curb such practices. It tries to prevent corrupt payments to foreign government officials and others considered to be ‘instrumentalities of a foreign government.’ FCPA applies to US companies and institutions, as well as foreign companies, institutions or persons with a nexus to the United States, and their affiliates.
However, in an emerging economy, laws such as the FCPA could delay the removal of remaining economic impediments, thereby preserving economic inefficiency and unfairness. In this paper, we study this aspect of foreign anti-corruption policy from the viewpoint of market quality theory, under which market quality is defined as a measure for efficiency in allocation and fairness in trading.
To read the full text
https://www.rieti.go.jp/jp/publications/dp/20e087.pdf
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