The paper adds to the limited number of studies analysing the relationship between host country corruption and FDI inflows. A model describes the incentives that foreign MNEs and host country bureaucrats have for engaging in corruption and shows how corruption increases the MNE cost of operations in the host country. The model prediction that the costs caused by corruption reduce FDI inflows is verified by regression analysis using panel data. Host country corruption has a significant negative effect on FDI inflows to developing economies but not for developed economies.