An Empirical Analysis of the Foreign Corrupt Practices Act

This Note undertakes an empirical analysis of the effects of the Foreign Corrupt Practices Act on corruption and U.S. investment abroad.  It also examines macroeconomic variables to analyze the law’s distributional effects across countries.  To date, no quantitative research has been conducted on the effect of the FCPA in combatting corruption.  Using multiple linear regression models, this Note uses a dataset comprised of up to 118 countries and focuses on the 2000 to 2011 time period.  The results of this research find a negative correlation between the growth rate of perceptions of corruption and the incidence of prosecuted FCPA violations in a given country.  This finding may provide some support for, and is at least consistent with, the idea that the FCPA has been effective in reducing corruption.  The data, however, do not show a significant relationship between the growth of U.S. investment and the frequency of FCPA violations.  Therefore, the empirical results of this Note do not appear to provide support for the idea that the FCPA has been an impediment to U.S. investment abroad.  Finally, the results also find that firms operating in overseas markets with certain characteristics are more exposed to FCPA enforcement actions than others.  Even after controlling for initial levels of corruption and U.S. investment, violations are more likely to occur in fuel-exporting economies, manufacturing economies, and economies with relatively small governments.  This insight is useful for firms in creating risk-based compliance programs.