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FDI promotion through bilateral investment treaties: more than a bit?
[journal article]
Abstract Policy makers 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 de... view more
Policy makers 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 data set 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 probably not for unilateral capital account liberalization.... view less
Keywords
direct investment; foreign investment; economic cooperation; developing country
Classification
Economic Policy
Free Keywords
FDI; Multinational corporations; Bilateral investment treaties; C33; F21; F23;
Document language
English
Publication Year
2010
Page/Pages
p. 147-177
Journal
Review of World Economics, 146 (2010) 1
DOI
https://doi.org/10.1007/s10290-009-0046-x
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)