FDI promotion through bilateral investment treaties: More than a bit?

Arbeitspapier

Policymakers in developing countries have increasingly pinned their hopes on bilateral investment treaties (BITs) in order to improve their chances in the worldwide competition for foreign direct investment (FDI). However, the effectiveness of BITs in inducing higher FDI inflows is still open to debate. It is in several ways that we attempt to clarify the inconclusive empirical findings of earlier studies. We cover a much larger sample of host and source countries by drawing on an extensive dataset on bilateral FDI flows. Furthermore, we account for unilateral FDI liberalization, in order not to overestimate the effect of BITs, as well as for the potential endogeneity of BITs. Employing a gravity-type model and various model specifications, including an instrumental variable approach, we find that BITs do promote FDI flows to developing countries. BITs may even substitute for weak domestic institutions, though not for unilateral capital account liberalization.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1403

Classification and Topics

• Classification: Wirtschaft ; International Investment; Long-term Capital Movements ; Multinational Firms; International Business ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
• Subject: Multinational Corporations ; Bilateral Investment Treaties ; FDI ; Direktinvestition ; Investitionspolitik ; Gravitationsmodell ; Entwicklungsländer

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Busse, Matthias ; Königer, Jens ; Nunnenkamp, Peter
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/4227
• Last update: 10.03.2025, 11:43 AM CET