International Review of Economics and Finance 72 (2021) 573–582

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International Review of Economics and Finance

journal homepage: www.elsevier.com/locate/iref

Anti-corruption courts and foreign direct investments

Emre Kuvvet
Department of Finance, Nova Southeastern University, USA

A R T I C L E I N F O A B S T R A C T

JEL classification: We look at the association between anti-corruption courts and foreign direct investments. We find
D73 the position of anti-corruption courts in the judicial hierarchy influences the relationship between
F21 anti-corruption courts and foreign direct investments. While First Instance Court and Hybrid Court
F23
systems are negatively associated with foreign direct investments, a Comprehensive Parallel Court
G14
G38
system is positively associated. Additional evidence from bilateral foreign direct investments
K42 suggests that investor countries with high corruption are associated with an increase in their direct
investments to countries that establish First Instance Court and Hybrid Court. However, those
Keywords:
Anti-corruption court corrupt investor countries are associated with a decrease in direct investments if a country,
Foreign direct investment instead, creates a Comprehensive Parallel Court.
Corruption
Bribery

1. Introduction

Corruption1 decreases the amount of foreign direct investments to a country (Cuervo-Cazurra, 2006; Egger & Winner, 2006; Habib &
Zurawicki, 2002; Wei, 2000). It is important for countries with high levels of corruption to deal with this challenge effectively, as they
also need foreign direct investments for their development.2
Countries have used different strategies to deal with the rampant corruption epidemic. Some have created independent anti-
corruption agencies with the power to investigate and prosecute corrupt individuals.3 Other countries have launched well-publicized
anti-corruption campaigns, such as the Eight-point Policy (八项规定) of China (Griffin, Liu, & Shu, 2018; Ke, Liu, & Tang, 2016; Lin,
Morck, Yeung, & Zhao, 2018).
A relatively new phenomenon, anti-corruption courts have become a tactic to combat the corruption epidemic in countries with
unscrupulous ordinary court systems that are open to political pressure. Many countries with high levels of corruption establish

E-mail address: ekuvvet@nova.edu.

1
In this paper, we define corruption as the misuse of public office for private gains.
2
https://www.un.org/press/en/2010/sgsm13292.doc.htm.
3
Some examples of anti-corruption agencies around the world are: the Officina Anticorrupcion of Argentina, the Commission on Combating
Corruption of Azerbaijan, the Anti-Corruption Commission of Bhutan, the Federal Ethics and Anti-Corruption Commission of Ethiopia, the Anti-
Corruption Commission of Liberia, among others. Currently, forty-seven countries have anti-corruption agencies.

https://doi.org/10.1016/j.iref.2020.12.019
Received 18 January 2020; Received in revised form 7 July 2020; Accepted 19 December 2020
Available online 24 December 2020
1059-0560/© 2020 Elsevier Inc. All rights reserved.
E. Kuvvet International Review of Economics and Finance 72 (2021) 573–582

specialized courts that focus on corruption cases. Currently, there are 23 countries4 with anti-corruption courts. Those countries have
been faced with corruption issues.5 Several other countries, such as Albania, Moldova, and Nigeria, with high levels of corruption are
also debating whether to establish anti-corruption court systems. In this paper, we look at the association between anti-corruption court
systems and foreign direct investments in corrupt countries. We want to emphasize that our goal is not to document the casual link
between anti-corruption courts and foreign direct investments but rather to provide important evidence regarding the association
between the anti-corruption court systems and foreign direct investments.
Stephenson and Schutte (2016) suggest that countries establish anti-corruption courts when the integrity and independence of the
ordinary judiciary are in question. In many corrupt countries, the judiciary body has been degraded and is under heavy political
pressure. The judiciary in corrupt countries may not be able to prosecute corruption cases fairly against politically connected in-
dividuals.6 Impunity enjoyed by politically connected people in corrupt countries has been preserved in part by the ordinary court
systems. Getting a conviction against politically connected individuals in those countries may be difficult, even when the evidence for
their corruption is clear-cut. Because fixing the integrity of the entire judicial system immediately is a difficult task, many corrupt
countries turn to specialized anti-corruption courts. Those countries create a separate judicial body that aspires to be independent and
impartial. In other words, anti-corruption courts are separated from the ordinary judiciary in order to fight the impunity enjoyed by
politically connected individuals.
Anti-corruption courts are diverse in design. While some countries create a special anti-corruption division established as a part of an
existing court system, other countries establish an entirely new system separate from the ordinary judiciary (Stephenson & Schutte,
2016). Countries may establish anti-corruption courts as the courts of first instance.7 Other countries can establish anti-corruption courts
as appellate courts.8 Some countries may also establish anti-corruption court systems that have both trial and appellate functions in the
same court system. Other countries could establish anti-corruption court systems with separate trial and appellate levels.
We find that the relationship of an anti-corruption court to the ordinary judicial system are associated with the amount of foreign
direct investments that a country with an anti-corruption court system will receive. An anti-corruption court system, such as Compre-
hensive Parallel Court, that includes both first instance trial and appellate anti-corruption courts within the same system is positively
associated with foreign direct investments. On the other hand, anti-corruption court systems that do not include both first instance trial
anti-corruption courts and appellate anti-corruption courts within the same system such as First Instance Court and Hybrid Court are
negatively associated with foreign direct investments. Our results emphasize the importance of insulating the anti-corruption court
system from the existing court system to the greatest extent. Foreign investors seem to put importance on this institutional separation, as
they cannot trust the integrity and independence of the existing court system in a corrupt country. Furthermore, we find that the
composition of foreign investors is associated with the type of anti-corruption court systems that a country establishes. We find that
investor countries with high corruption are associated with an increase in their foreign direct investments to countries that establish First
Instance Court and Hybrid Court. However, those corrupt investor countries are associated with a decrease in their foreign direct in-
vestments to a country if that country, instead, creates a Comprehensive Parallel Court.
The paper proceeds as follows: Section 2 reviews the literature. Section 3 develops the research hypotheses. Section 4 explains data
and research methodology. Section 5 reports the empirical results. Section 6 provides concluding remarks.

2. Literature review

Our study is a part of emerging literature that looks at the association between anti-corruption measures and foreign direct in-
vestments. Most of those studies focus on the relation between anti-corruption laws of developed countries and the foreign direct in-
vestments in the corrupt countries, as bribe-paying companies mostly come from developed countries such as the U.S. and the U.K
(Cheung, Rau, & Strouratis, 2012). For example, one of the oldest foreign anti-corruption laws in the World is the 1977 U.S. Foreign
Corrupt Practices Act (FCPA). This law prohibits U.S. companies from bribing foreign officials to obtain or retain business. Hines (1995)
examines the effect of this anti-corruption law in the U.S. on the direct investment in those corrupt countries and finds that U.S. firms
reduced their business activities, including direct investments, in bribe-prone countries after the passage of the FCPA of 1977. Another
example of anti-corruption law from a developed country is the U.K Bribery Act 2010. This law imposes significant penalties for the use
of bribe for not just U.K. firms but any foreign firm with U.K. operations to obtain or retain business. Zeume (2017) examines the passage
of the U.K. Bribery Act of 2010 as an exogenous shock to U.K. firms’ cost of doing business in corrupt countries. Zeume’s (2017) findings
are similar to Hines (1995). Namely, he shows that firms from the U.K. decreased their investments in corrupt countries after the passage
of the U.K. Bribery Act of 2010.
Other studies look at the effectiveness of international anti-corruption agreements on foreign direct investments of the signatory
nations. For instance, Cuervo-Cazurra (2008) finds that investors from countries that implemented the Organization for Economic

4
Those 23 countries include Afghanistan, Bangladesh, Botswana, Bulgaria, Burundi, Cameroon, Croatia, Indonesia, Kenya, Madagascar, Malaysia,
Mexico, Nepal, Pakistan, Palestine, Philippines, Senegal, Slovakia, Sri Lanka, Tanzania, Thailand, Uganda, and Ukraine.
5
For our sample countries, the median Corruption Perception Index (CPI) score at the establishment year of the anti-corruption court is 2.68. Given
that the Corruption Perception Index of Transparency International ranges between 10 (least corrupt) and 0 (highly corrupt), those countries can be
considered as corrupt.
6
https://www.hrw.org/report/2013/10/21/letting-big-fish-swim/failures-prosecute-high-level-corruption-uganda.
7
Court of first instance is defined as a court having original jurisdiction, in which trials take place.
8
Appellate court is defined as a court having the authority to hear an appeal of a court of first instance.

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E. Kuvvet International Review of Economics and Finance 72 (2021) 573–582

Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Trans-
actions of 1997 reduced their investments in corrupt countries. We contribute to this literature by being the first to examine the as-
sociation between the establishment of anti-corruption courts in corrupt countries and foreign direct investments in those corrupt
countries.

3. Hypothesis development

In our paper, we look at the association between the establishment of anti-corruption court systems, such as the First Instance Court,
Hybrid Court, and Comprehensive Parallel Court, and foreign direct investments in those corrupt countries. Foreign investors may consider
the establishment of an anti-corruption court to be a manifestation of a country’s willingness to fight corruption. Regardless of the
efficacy of their design, the mere establishment of those courts may send a message to foreign investors that a country seriously desires
to eradicate corruption.
However, it is also possible that setting up an effective design for an anti-corruption court system with its genuine independence and
resources can attract more foreign direct investments. Foreign investors may consider the design of an anti-corruption court system to be
vital in consistently enforcing actions across time and across different degrees of politically connected people. For instance, the
Comprehensive Parallel Court of Indonesia has maintained a 100% conviction rate, even with cases involving politically connected people,
such as ministers as well as family members of former presidents, governors, and parliamentarians (Butt, 2009). Thus, it is possible that
countries with Comprehensive Parallel Court systems will receive more foreign direct investments relative to countries with First Instance
Court and Hybrid Court systems. We state our first set of hypotheses as follows:
Hypothesis 1a. Ceteris paribus, the establishment of a first instance anti-corruption court is positively associated with FDI in a
country.
Hypothesis 2a. Ceteris paribus, the establishment of a hybrid anti-corruption court is positively associated with FDI in a country.
Hypothesis 3a. Ceteris paribus, the establishment of a comprehensive parallel anti-corruption court is positively associated with FDI
in a country.
However, it is also likely that not forming the efficient design for an anti-corruption court system can cause foreign investors to lose
further confidence in the country’s commitment to eliminate corruption. Thus, foreign investors could regard this as the corrupt country
just paying lip service for the fight against corruption and having no desire and/or ability to come up with an effective anti-corruption
measure. This could erode investors’ trust further.
Initial evidence suggests that some of those anti-corruption court systems have not delivered on the high hopes for those courts to
combat the scourge of corruption. Some of them have remained under intense political pressure. For instance, since the establishment of
its First Instance Court in 2009, Slovakia has been effective in combating local-level corruption but has had very few convictions for
high-level corruption involving Slovak politicians (Stephenson, 2016a). Most of the convictions in Slovak anti-corruption courts have
been petty offenses involving small bribe payments; bribery convictions involving politically connected individuals have not appeared
yet. Hybrid Courts, such as in Uganda and the Philippines, also are not immune to political influence. According to the Humans Right
Watch Report of 2013, Uganda’s Hybrid Court system has been focusing on low-level corruption cases involving small sums of money,
while ignoring the larger corruption cases due to political pressure.9 Similarly, the Hybrid Court of the Philippines seems to be prone to
political influence. Stephenson (2016b) reports that “some critics, however, note that although there is little evidence of crude direct
pressure on the court, the webs of personal and family relationship among political connected individuals in the Philippines, as well as
the fact that some Sandiganbayan judges aspire to a position on the Supreme Court, mean that the court’s decisions in high-profile cases
may be susceptible to subtle, indirect forms of political influence” (p. 3). Thus, we state our second set of competing hypotheses as
follows:
Hypothesis 1b. : Ceteris paribus, the establishment of a first instance anti-corruption court is negatively associated with FDI in a
country.
Hypothesis 2b. Ceteris paribus, the establishment of a hybrid anti-corruption court is negatively associated with FDI in a country.
Hypothesis 3b. Ceteris paribus, the establishment of a comprehensive parallel anti-corruption court is negatively associated with FDI
in a country.

4. Data and research methodology

The information about anti-corruption courts for our sample countries comes from the Anti-Corruption Resource Center (U4). U4 is a
web-based resource center for development practitioners who want to effectively address corruption challenges in their work. U4 is
operated by the Chr. Michelsen Institute, an independent center for research on international development and policy, and is funded by
the governments of Austria, Canada, Denmark, UK, Germany, Norway, Sweden, Switzerland, and Finland.10 Although, there are
currently 23 countries with anti-corruption court systems, our sample includes only 16 countries. This is because our foreign direct

9
https://www.hrw.org/report/2013/10/21/letting-big-fish-swim/failures-prosecute-high-level-corruption-uganda.
10
For more information about U4, please refer to the following link: https://www.u4.no/topics/anti-corruption-courts.

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E. Kuvvet International Review of Economics and Finance 72 (2021) 573–582

investment data ends in 2017, and we want to use at least 4 years of data after the establishment of an anti-corruption court for our most
recent observation in the sample. Thus, we exclude all the countries that established anti-corruption courts after 2013.11 For those 16
countries, the median Corruption Perception Index (CPI) score at the establishment year of the anti-corruption court is 2.68. The median
is low. In other words, those countries were considered corrupt at the time of the establishment of their anti-corruption court systems.
This is not surprising, as that is why they established specialized courts to combat the corruption epidemic in the first place. Fig. 1 shows
the location of 16 countries in our sample with anti-corruption court systems in the world map. Those 16 countries are in Europe, Africa,
and Asia. The American continents do not have any corrupt countries with an anti-corruption court system.
Table 1 indicates the establishment years of anti-corruption courts for those 16 countries in our sample. Table 1 also shows the
designs of the anti-corruption court systems for those countries. The oldest anti-corruption court in the World is Sandiganbayan (Anti-
Graft Court) established in 1979 in the Philippines. For the following 19 years, no other country established an anti-corruption court.
Most anti-corruption courts were created within the past 16 years. Botswana is the most recent country in our sample, establishing their
anti-corruption court system in 2013.
We classify anti-corruption court systems as Solo Judge, First Instance Court, Hybrid Court, and Comprehensive Parallel Court, following
Stephenson and Schutte’s (2016) classification. In the Sole Judge design, countries do not have a separate anti-corruption court. Instead,
certain judges are designated to preside over corruption cases. In the Sole Judge design, appeals from the first instance anti-corruption
judges go through one or more of the usual intermediate layers of appeals before reaching the country’s supreme court. In our sample,
Kenya and Bangladesh have a Solo Judge design. In the First Instance Court design, stand-alone specialized anti-corruption courts serve as
a first instance trial court, with appeals going directly from this anti-corruption court to the supreme court. In our sample, Pakistan,
Nepal, Burundi, Slovakia, Croatia, Cameroon, and Senegal have a First Instance Court design.
In the Hybrid Court design, an anti-corruption court may serve as a court of first instance for more important corruption cases and
serve as an intermediate appellate court for other corruption cases already heard in the first instance by generalist trial courts. Appeals
from the anti-corruption court go to the supreme court. In our sample, the Philippines, Uganda, and Botswana have a Hybrid Court
design. Finally, in the Comprehensive Parallel Court design, an anti-corruption court system includes both courts of first instance and
appellate courts. In other words, this anti-corruption court system has anti-corruption trial courts as well as anti-corruption appellate
courts to hear appeals from the anti-corruption trial courts.12 In our sample, Indonesia, Afghanistan, Malaysia, and Bulgaria have a
Comprehensive Parallel Court design. Table 2 describes the anti-corruption courts based on their relation to the regular judicial system.
The FCPA of 1977 imposes fines and criminal penalties on American individuals and firms responsible for bribing foreign gov-
ernment officials. The act also mandates strict accounting changes intended to make it difficult for firms to hide bribe payments. In
addition, the FCPA prohibits firms from paying bribes through third parties. As of February 15, 2019, the total monetary sanctions in
FCPA-related enforcement actions is $18,402,154,516. The average length of prison sentences in FCPA-related enforcement actions is
28 months. The average monthly cost for an FCPA-related investigation for the accused is $2,114,616, and the average length of an
FCPA-related investigation is 38 months.13
The existence of the FCPA has deterred U.S. companies from investing in corrupt countries due to the significant cost of FCPA
enforcement actions (Grimm, 2010; Koehler, 2010; Lindsey, 2009; Weissmann & Smith, 2010). For instance, Graham and Stroup (2016)
show that FCPA enforcement actions in a corrupt country reduces subsequent U.S. companies’ investments to that country by 40%. Hines
(1995) also shows that U.S. business activity in corrupt countries has significantly declined since the passage of the FCPA, leading to a 30%
reduction in local GDP in some cases. Wei (2000) also finds that American investors are sensitive to corruption in host countries.
U.S. foreign direct investments into the countries with anti-corruption court systems provides us an ideal empirical setting to
examine the association between anti-corruption court systems and foreign direct investments. This is because U.S. firms are more likely
to increase their investments if they perceive those anti-corruption courts to be effective.
We use the following specification to examine the relation between the establishment of an anti-corruption court system and that
country’s U.S. foreign direct investments:

U.S. FDIc,i ¼ a1þ a2 * Hybrid Courtc * Post þ a3 * Comprehensive Parallel Courtc * Post þ a4 * Postcþ a5 * Hybrid Courtcþ a6 * Comprehensive
Parallel Courtcþ a7 * GDP Growthc,i-1þ a8 * Log (Population)c,i-1þ a9 * Unemploymentc,i-1þ a10 * Inflationc,i-1þ a11 * Log (Geographic Dis-
tance)cþ a12 * Common Law Origincþ a13 * Corruptioncþ a14 * Log (Pre-Existing Trade with U.S.)cþ Year Fixed Effect þ Country Fixed Effect þ
ϵc,i (1)

where US FDIc,i is the U.S. foreign direct investment position in country c in year i. We determine the U.S. foreign direct investment
positions using information from the U.S. Department of Commerce from 1989 to 2017.14 We use annual country detail files for the U.S.
direct investment position aboard.15 Because the First Instance Court design has the highest number of observations, it is the best

11
Those countries include Mexico (2015), Tanzania (2016), Thailand (2016), Madagascar (2016), Sri Lanka (2018), and, most recently, Ukraine
(2018). We also exclude Palestine (2010) from our sample, as there is no foreign direct investments data for that country.
12
For more detailed information about the classification of anti-corruption court designs, please refer to Stephenson and Schutte (2016).
13
http://fcpa.stanford.edu/statistics-keys.html.
14
Please refer to the following link to access the U.S. FDI data: https://www.bea.gov/international/di1usdbal.
15
The anti-corruption court of the Philippines was established in 1979. However, the annual country detail data for the U.S. direct investment
position abroad starts in 1989. We supplement the U.S. FDI data for the Philippines by adding additional data for that country from 1973 until 1988.
The U.S. FDI data for the Philippines between 1973 and 1981 comes from the historical country detail file for the U.S. direct investment position. The
U.S. FDI data for the Philippines between 1982 and 1988 comes from the country by industry detail file for the U.S. direct investment position.

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E. Kuvvet International Review of Economics and Finance 72 (2021) 573–582

Fig. 1. World map of anti-corruption courts.

This figure shows the location of the 16 countries in our sample with anti-corruption court systems in the world map.

identified among other anti-corruption court systems. Thus, we select it as the reference and leave it out in our regressions. Therefore,
we identify the relative propensity to attract investment by other anti-corruption court systems. We also exclude the Solo Judge design
from our regressions, as it has only two countries as observations, thus making it difficult to interpret the results confidently.16 Hybrid
Courtc and Comprehensive Parallel Courtc are dummy variables that equal to one if a country has a hybrid anti-corruption court system or
comprehensive parallel anti-corruption court system, respectively, and equals zero otherwise. The Postc is a dummy variable that takes
the value of 1 for all the years on and after the establishment of one of those three court systems.
We also include several control variables in our regressions from the standard gravity models in the foreign direct investment
literature (Guiso, Sapienza, & Zingales, 2009). We control for macroeconomic variables such as the annual percentage Gross Domestic
Product (GDP) growth rate for the host country, the natural logarithm of the host country’s total population, the annual percentage
unemployment rate of the host country, and the annual inflation rate of the host country. Those time-series variables for each country
come from the World Development Indicators.17 We use the lagged value of the macroeconomic variables.
We also use several control variables, which do not vary over time. We control for the natural logarithm of the distance between two
capitals. Geographic distance variable is calculated (in kilometers) following the great circle formula, which uses the geographic co-
ordinates of the capitals for home and host countries. The data come from GeoDist.18 We also control for whether home and host
countries have the same legal origin. The legal origins are English, French, German, Scandinavian, and Islamic. Common Law Origin
variable is set to one if home and host countries share the same legal origin, or else is zero. We also control for the corruption level of a
host country. This variable comes from Transparency International.19 We use the Corruption Perception Index score at the year before
the establishment of the anti-corruption court in the host country. To make the value of the Corruption Perception Index variable more
intuitive, we invert the index 0 (very corrupt) to 10 (not corrupt) scale by subtracting a host country’s corruption score from 10. Thus,
our Corruption variable is 10 minus the host country’s Corruption Perception Index. Higher values of a Corruption variable indicate a
higher corruption level for the host country. In addition, the pre-existing trade relation between host and home countries may guide FDI.
Therefore, we control for the import and export relationship between the U.S. and the host country in our regressions. Log (Pre-Existing
Trade with U.S.) variable is the natural logarithm of the total trade (export and import) between the U.S. and the host country at the year
before the establishment of the anti-corruption court in the host country. The data come from the U.S. Census Bureau.20 Our specifi-
cations also include year and country of destination-fixed effects.

16
We thank the referee for making those suggestions. Our results are qualitatively similar if we include the observations for the Solo Judge design in
our regressions.
17
Please refer to the following link to access the World Bank data: https://databank.worldbank.org/reports.aspx?source¼2&series¼FP.CPI.
TOTL.ZG&country¼.
18
Please refer to the following link to access the distance data: http://www.cepii.fr/CEPII/en/bdd_modele/presentation.asp?id¼6.
19
Please refer to the following link to access the corruption data: https://www.transparency.org/research/cpi/overview.
20
Please refer to the following link to access the U.S. trade data: https://www.census.gov/foreign-trade/statistics/country/index.html.

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Table 1
Anti-corruption courts.
Year Country Solo First Hybrid Comprehensive Source
Judge Instance Court Parallel Court
Court

1979 Philippines 0 0 1 0 http://www.neda.gov.ph/wp-content/uploads/2013/10/PD-1606-

Revising-PD-No.-1486-Creating-Special-COurt-to-be-known-as-
Sandiganbayan-and-for-other-purposes.pdf
1999 Pakistan 0 1 0 0 http://www.molaw.gov.pk/molaw/userfiles1/file/MOLAW/
NABORDINANCE-1999.pdf
2002 Indonesia 0 0 0 1 https://www.oecd.org/site/adboecdanti-corruptioninitiative/46814429.
pdf
2002 Nepal 0 1 0 0 https://cdn.sanity.io/files/1f1lcoov/production/CDwR6nTXrees_
w05TgdjIspUAAfo5TrDvFaBc.pdf
2003 Kenya 1 0 0 0 https://www.ilo.org/dyn/natlex/docs/ELECTRONIC/98809/117654/F-
1718951145/KEN98809.pdf
2004 Bangladesh 1 0 0 0 https://www.oecd.org/site/adboecdanti-corruptioninitiative/46812498.
pdf
2006 Burundi 0 1 0 0 http://www.assemblee.bi/IMG/pdf/loi_n1-36_du_13_decembre_2006-2.pdf
2008 Uganda 0 0 1 0 http://judiciary.go.ug/data/smenu/19/Anti-Corruption%20Division.html
2009 Slovakia 0 1 0 0 http://www.epi.sk/zz/2009-291
2010 Croatia 0 1 0 0 https://www.legislationline.org/documents/id/16473
2010 Afghanistan 0 0 0 1 http://supremecourt.gov.af/Content/files/Bulletin_70.pdf
2011 Cameroon 0 1 0 0 https://www.memoire-cameroun.com/app/download/11063708257/
Loiþ2012_011þduþ16þjuilletþ2012þModifiantþetþcompl%C3%
A9tantþcertainesþdispositionsþdeþlaþloiþnumþ2011_028þduþ14þd%
C3%A9cembreþ2011þportantþcr%C3%A9ationþduþtcs..pdf?
t¼1469401394
2011 Malaysia 0 0 0 1 https://cdn.sanity.io/files/1f1lcoov/production/
a89e2a9517ce0a4d567df52d61e38118e6bb7a16.pdf
2012 Bulgaria 0 0 0 1 https://www.legislationline.org/documents/id/21344
2012 Senegal 0 1 0 0 https://www.nation.co.ke/news/africa/Senegal-new-leader-out-to-battle-
graft/1066-1404984-ui92cpz/index.html
2013 Botswana 0 0 1 0 https://cdn.sanity.io/files/1f1lcoov/production/CDwR6nTXrees_
VbQNC6o16k4DhfCXxZHfkknr.pdf

This table indicates the establishment years of anti-corruption courts for the 16 countries in our sample as well as the designs of the anti-corruption
court systems for those countries. We classify anti-corruption court systems as Solo Judge, First Instance Court, Hybrid Court, and Comprehensive Parallel
Court, following Stephenson and Schutte’s (2016) classification. In the Sole Judge design, countries do not have a separate anti-corruption court.
Instead, certain judges are authorized to preside over corruption cases. In the Sole Judge design, appeals from the first instance anti-corruption judges
go through one or more of the usual intermediate layers of appeals before any appeal to the country’s supreme court. In the First Instance Court design,
stand-alone specialized anti-corruption courts serve as a first instance trial court, with appeals going directly from this anti-corruption court to the
supreme court. In the Hybrid Court design, an anti-corruption court may serve as a court of first instance for more important corruption cases as an
intermediate appellate court for other corruption cases that are heard in the first instance by generalist trial courts. Appeals from the anti-corruption
court go to the supreme court. In the Comprehensive Parallel Court design, an anti-corruption court system includes both courts of first instance and
appellate courts.

5. Empirical results

5.1. Regression results using the U.S. foreign direct investment positions

Table 3 shows the association between the establishment of an anti-corruption court system in a corrupt country and the U.S. foreign
direct investment position toward that corrupt country. The dependent variable is the direct investment position of the U.S. on a country
with an anti-corruption court system. In all regression tables, the heteroscedasticity consistent t-statistics are reported below the co-
efficient estimates.
Model 1 of Table 3 reports the regression results without the control variables and fixed effects. Model 2 reports the results with the
control variables, but without the fixed effects. Model 3 contains year and country fixed effects but excludes the control variables.
Finally, Model 4 includes time-variant control variables, year, and country fixed effects. Because we use the country fixed effect in Model
4, we exclude time invariant control variables such as Log (Geographic Distance, Common Law Origin, Corruption, and Log (Pre-Existing
Trade with U.S.). Those control variables are absorbed by the country fixed effects. We also exclude Hybrid Court and Comprehensive
Parallel Court as those variables are also time invariant.
The adjusted-R2 for Model 4 is 77%. In Model 4, the coefficient for the interaction term between the Hybrid Court and Post variables is
655.13 and statistically significant at 5%, while the coefficient for the interaction term between the Comprehensive Parallel Court and Post
variables is 2969.60 and statistically significant at 1%. The coefficient for Post variable is 1399.56 and statistically significant at 1%.
Thus, we find support for Hypothesis 1b, Hypothesis 2b, and Hypothesis 3a. In other words, those results suggest that the relationship of
an anti-corruption court with the ordinary judicial system is associated with the amount of foreign direct investments that a country with
an anti-corruption court system will receive. An anti-corruption court system such as the Comprehensive Parallel Court that includes both

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Table 2
Type of the anti-corruption courts.
Type of the Anti-Corruption Functions and Structures of the Anti-Corruption Courts
Courts

Solo Judge Judges are designated or appointed as special anti-corruption judges on general trial courts. The usual appeals process remains in
place.
First Instance Court Specialized anti-corruption court has original jurisdiction over anti-corruption cases, with appeals to the supreme court.
Hybrid Court Anti-corruption court may serve as a court of first instance for some (more important) corruption cases and serve as an
intermediate appellate court for other corruption cases that are heard in the first instance by generalist trial courts. Appeals from
the anti-corruption court go to the supreme court.
Comprehensive Parallel Court Anti-corruption court system includes both first instance trial courts and appellate courts.

This table, adapted from Stephenson and Schutte (2016), describes the anti-corruption courts based on their relation to the regular judicial system.

Table 3
U.S. Foreign direct investment positions.
FDI FDI FDI FDI

Model [1] Model [2] Model [3] Model [4]

Hybrid Court * Post 2401.37*** 1654.39*** 779.74*** 655.13**

(7.34) (3.85) (2.84) (2.27)
Comprehensive Parallel Court * Post 4158.86*** 3899.57*** 2959.71*** 2969.60***
(3.52) (4.87) (4.89) (4.90)
Post 100.51** 945.60*** 1376.67*** 1399.56***
(2.50) (-4.42) (-4.48) (-4.46)
Hybrid Court 8.64 2382.90***
(-0.21) (-6.37)
Comprehensive Parallel Court 2839.35*** 21.127
(6.52) (-0.09)
GDP Growth 24.68 38.09*
(-1.08) (-1.91)
Log (Population) 1375.69*** 444.39
(5.24) (0.68)
Unemployment 137.73*** 10.73
(-5.21) (-0.45)
Inflation 0.24 0.76**
(-1.17) (2.57)
Log (Geographic Distance) 4853.73***
(10.36)
Common Law Origin 1477.48***
(-4.57)
Corruption 1758.96***
(-9.15)
Log (Pre-Existing Trade with U.S.) 223.85**
(2.32)
Year Fixed Effect No No Yes Yes
Country Fixed Effect No No Yes Yes

Adj R2 0.37 0.66 0.77 0.77

N 422 422 422 422

The dependent variable is the U.S. foreign direct investment position toward a country with an anti-corruption court system. The sample is from 1989
until 2017. Hybrid Court and Comprehensive Parallel Court are dummy variables that equal to one if a country has a hybrid anti-corruption court system
or comprehensive parallel anti-corruption court system, respectively, and equals zero otherwise. The Post is a dummy variable that takes the value of 1
for all the years on and after the establishment of one of those three court systems. We control for macroeconomic variables such as the annual
percentage Gross Domestic Product (GDP) growth rate for the host country, the natural logarithm of the host country’s total population, the annual
percentage unemployment rate of the host country, and the annual inflation rate of the host country. We use the lagged value of the macroeconomic
variables. We also use several control variables, which do not vary over time. Geographic distance variable is calculated (in kilometers) following the
great circle formula, which uses the geographic coordinates of the capitals for home and host countries. Common Law Origin variable is set to one if
home and host countries share the same legal origin, or else is zero. We also control for the corruption level of a host country. We use the Corruption
Perception Index score at the year before the establishment of the anti-corruption court in the host country. To make the value of the Corruption
Perception Index variable more intuitive, we invert the index 0 (very corrupt) to 10 (not corrupt) scale by subtracting a host country’s corruption score
from 10. Thus, our Corruption variable is 10 minus the host country’s Corruption Perception Index. Higher values of a Corruption variable indicate a
higher corruption level for the host country. Log (Pre-Existing Trade with U.S.) variable is the natural logarithm of the total trade (export and import)
between the U.S. and the host country at the year before the establishment of the anti-corruption court in the host country. Our regressions also include
year and country of destination-fixed effects. All other variables are defined in Table 1. The heteroscedasticity consistent t-statistics are reported below
the coefficient estimates. *, **, and *** indicate significance at the 10%, 5%, and 1% level, respectively.

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first instance trial anti-corruption courts and appellate anti-corruption courts within the same system is positively associated with
foreign direct investments. On the other hand, anti-corruption court systems that do not include both first instance trial anti-corruption
courts and appellate anti-corruption courts within the same system, such as a First Instance Court or Hybrid Court, are negatively asso-
ciated with foreign direct investments.

5.2. Alternative methodology to identify the association between anti-corruption court systems and foreign direct investments

As a robustness check for our results, we also use an alternative methodology to look at the relation between the establishment of an
anti-corruption court system and that country’s foreign direct investments. Not all countries have effective laws against bribery abroad.
This is especially true for countries with high corruption (Cuervo-Cazurra, 2008). Unlike those in the U.S. or the U.K., for instance,
Chinese anti-bribery laws do not increase the cost of bribing abroad for Chinese firms.21 While establishing an effective anti-corruption
court system will likely increase foreign direct investments from non-corrupt countries, it may also reduce foreign direct investments
from corrupt countries. Unlike investors from the U.S. and the U.K., investors from corrupt countries do not have legal constraints
against paying bribes abroad. Effective anti-corruption courts could provide a level playing field for investors from both corrupt and
noncorrupt countries. As the competitive advantage (the ability to pay bribes abroad with no consequences at home) of investors from
corrupt countries diminishes with the establishment of effective anti-corruption courts, we are less likely to see foreign direct investment
from those corrupt countries and more likely to see foreign direct investments from non-corrupt countries.
Thus, we use bilateral foreign direct investment inflows to countries with anti-corruption courts. Those “investor” countries include
both noncorrupt countries such as the U.S., Germany, and the U.K., and corrupt countries such as China, Brazil, and Russia. We use the
following specification:

Bilateral FDIc,b,i ¼ a1þ a2 * Hybrid Courtc * Post þ a3 * Hybrid Courtc * Post * Investor Country Corruptionbþ a4 * Comprehensive Parallel
Courtc * Post þ a5 * Comprehensive Parallel Courtc * Post * Investor Country Corruptionbþ a6 * Post þ a7 * Investor Country Corruptionbþ a8 *
Hybrid Courtcþ a9 * Comprehensive Parallel Courtcþ a10 * GDP Growthc,i-1þ a11 * Log (Population)c,i-1þ a12 * Unemploymentc,i-1þ a13 *
Inflationc,i-1þ a14 * Log (Geographic Distance)cþ a15 * Common Law Origincþ a16 * Corruptioncþ a17 * Log (Pre-Existing Trade with Home)cþ
Year Fixed Effect þ Country Fixed Effect þ ϵc,b,i (2)

where Bilateral FDIc,b,i is the foreign direct investment inflows in country c from investor country b in year i. The bilateral foreign direct
investment inflows data come from United Nations Conference on Trade and Development’s (UNCTAD) Bilateral FDI Statistics.22 The
sample is from 2001-201223 due to the availability of data. We also use the corruption level of an investor country as a control variable.
Our Investor Country Corruption variable is 10 minus the investor country’s Corruption Perception Index. Higher values of an Investor
Country Corruption variable indicate a higher corruption level for the investor country. Log (Pre-Existing Trade with Home) variable is the
natural logarithm of the total trade (export and import) between the home and the host country at the year before the establishment of
the anti-corruption court in the host country. Other variables are defined in the previous section.
Model 4 of Table 4 includes both year-fixed effects and country-fixed effects, as well as the time variant control variables. In Model 4,
the coefficient for the interaction term between the Comprehensive Parallel Court and Post variables is 421.13 and statistically significant
at 1%. Those results are consistent with our findings in Table 3.
The results also suggest that the composition of foreign investors is associated with the type of anti-corruption court systems that a
country establishes. In Model 4, the coefficient for the interaction term between the Hybrid Court, Post, and Investor Country Corruption
variables is 12.61 and statistically significant at 10%. Thus, investor countries with high corruption are associated with an increase in
their direct investments to a country that establishes a Hybrid Court. We also find that those corrupt investor countries are associated
with a decrease in their direct investments to a country if that country, instead, creates a Comprehensive Parallel Court.

6. Conclusions

Considering the detrimental nature of corruption on foreign direct investments and the significance of foreign direct investments on
countries’ development, it is important to fight corruption with an effective means. Our results suggest that one effective means to
increasing foreign direct investments could be to establish a Compressive Parallel Court, which has anti-corruption trial courts as well as
anti-corruption appellate courts to hear appeals from the anti-corruption trial courts within the same anti-corruption court system. Thus,
complete insulation of the anti-corruption court system from the existing court system seems to reassure foreign investors.
Unilateral anti-bribery regulations, such as the FCPA in the U.S. and the 2010 Bribery Act in the U.K., put companies from those
developed nations at an economic disadvantage, vis-a-vis competitor firms from corrupt countries without anti-bribery regulations, such
as China (Zeume, 2017). Establishing a Comprehensive Parallel Court in a corrupt country can provide a more level playing field for all the
firms. It could also have a meaningful effect on reducing the corruption level in the country.

21
https://foreignpolicy.com/2018/09/13/corruption-is-wasting-chinese-money-in-africa/.
22
Please refer to the following link to access the bilateral FDI inflows data: https://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics-
Bilateral.aspx.
23
Because bilateral foreign direct investment inflows data start in 2001 and end in 2012, Table 4 excludes countries from our sample that establish
their anti-corruption courts before 2001 and on and after 2012. Thus, we exclude the Philippines, Pakistan, Bulgaria, Senegal, and Botswana in
Table 4.

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Table 4
Alternative methodology to identify the relation between anti-corruption court systems and foreign direct investments.
Bilateral FDI Bilateral FDI Bilateral FDI Bilateral FDI

Model [1] Model [2] Model [3] Model [4]

Hybrid Court * Post 6.58 73.41* 14.70 35.99

(-0.21) (1.93) (0.39) (0.60)
Hybrid Court * Post * Investor Country Corruption 12.71** 0.91 12.59** 12.61*
(2.39) (-0.16) (2.04) (1.93)
Comprehensive Parallel Court * Post 477.95*** 508.58*** 423.71*** 421.13***
(3.68) (4.04) (3.43) (3.38)
Comprehensive Parallel Court * Post * Investor Country Corruption 75.37*** 81.32*** 74.36*** 74.84***
(-3.45) (-3.68) (-3.49) (-3.49)
Post 13.13 18.31 143.95** 150.02**
(-1.56) (-1.35) (-2.22) (-2.08)
Investor Country Corruption 11.12*** 10.16*** 11.56*** 11.56***
(-6.31) (-5.62) (-6.43) (-6.44)
Hybrid Court 15.16* 22.57
(-1.69) (-0.96)
Comprehensive Parallel Court 46.71** 26.79
(2.34) (1.20)
GDP Growth 0.05 0.64
(0.03) (-0.15)
Log (Population) 9.89 278.88
(0.48) (1.28)
Unemployment 0.31 7.16
(-0.16) (-1.06)
Inflation 5.48** 4.75
(-2.56) (-1.49)
Log (Geographic Distance) 40.60***
(-3.63)
Common Law Origin 21.16
(0.66)
Corruption 8.16
(0.76)
Log (Pre-Existing Trade with Home) 11.66***
(5.80)
Year Fixed Effect No No Yes Yes
Country Fixed Effect No No Yes Yes

Adj R2 0.07 0.09 0.07 0.07

N 2577 2577 2577 2577

The dependent variable is the foreign direct investment inflows to a country with an anti-corruption court system from an investor country. The
bilateral foreign direct investment inflows data come from UNCTAD’s Bilateral FDI Statistics. The sample period is from 2001 until 2012. The Investor
Country Corruption variable is 10 minus the Corruption Perception Index. Higher values of the Investor Country Corruption variable indicate a higher
corruption level for the investor country. All other variables are defined in Tables 1 and 3 The heteroscedasticity consistent t-statistics are reported
below the coefficient estimates. *, **, and *** indicate significance at the 10%, 5%, and 1% level, respectively.

There is a caveat to our study. Because anti-corruption courts are a relatively new phenomenon, we have only 16 countries with anti-
corruption courts in our sample. As the number of countries with anti-corruption court systems increases and more yearly data for
foreign direct investments (post establishment of the anti-corruption court system) become available, future research can examine the
robustness of our results.

Author statement

I am the sole author of the paper. I have done the entire analysis.

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