Essays on corruption measurement, trust, and foreign investors in Eastern Europe

This dissertation is comprised of 3 essays that collectively focus on combinations of corruption measurement, perception of foreign investors, and their relationship with the state in Eastern Europe. The first essay presents empirical evidence that the most widely used indices to measure corruption, which are based on perceptions of experts, might be biased in systematic ways. Evidence from the International Crime Victimization Survey and the World Business Environment Survey suggests that actual corruption experience may be a weak predictor of reported corruption perception, and that some of the factors commonly found to "reduce" corruption, such as economic development, democratic institutions or Protestant traditions, systematically bias corruption perception downward from corruption experience. In addition, perception indices are influenced by absolute levels of corruption, which tends to penalize large countries, and they exhibit diminishing sensitivity to both absolute and relative corruption, indicating that they may better capture differences among countries with low levels of corruption than among highly corrupt ones. Individual characteristics, such as education, age, income. and employment status also influence corruption perceptions holding experience constant. The second essay shifts the focus from differences between experience and perception of corruption to differences in the perception of foreign investors. It analyzes the individual determinants of public trust in foreign investors in 28 post-communist countries included the 2006 Life in Transition survey by the EBRD. We find that attitudes towards foreign investors are related with the usual demographic characteristics--age, gender, location, and level of skill and education. In addition, we find that ideology, relative economic status, and foreign experience have significant effect on an individual's level of distrust of foreign investors. The third essay returns to the topic of experience and perception of corruption, this time from the perspective of enterprise managers. It offers an empirical analysis of the characteristics of firms that participate in state capture. with particular focus on foreign firms. We provide evidence that differences between foreign and domestic firms in various measures of capture have been decreasing over time. We also find that foreign enterprises are relatively more influential than domestic ones while they pay lower bribes and do not differ on other dimensions of state capture. Finally, we confirm the general finding in the literature that foreign firms grow faster than their domestic counterparts.