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Do Bilateral Investment Treaties Deliver the Goods? Evidence from Developing Countries

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  • Nziramasanga, Mudziviri
  • Inaba, Frederick S.
  • Shreay, Sanatan
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    Abstract

    Bilateral investment treaties (BITs), signed by developing countries explicitly state the objective of promoting foreign direct investment (FDI). The rapid increase in the number of BITs and the concurrent increase in worldwide flows of FDI between 1980 and 2003 suggest that BITs are an effective strategy toward this goal. Recent studies provide some empirical support for this link. However, FDI flows into specific countries from 1980 to 2003 reveals the puzzling behavior for flows to increase soon after country starts signing BITs, followed by fluctuations with either a downward trend or no noticeable trend at all. Our main contribution is to explain this behavior by explicitly incorporating the impact of treaty violations, as evidenced by treaty disputes arbitrated by the International Centre for Settlement of Investment Disputes, on FDI flows. We find that while BITs are effective in attracting investment, disputes tend to decrease future investment flows.

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    Bibliographic Info

    Article provided by Review of Applied Economics in its journal Review of Applied Economics.

    Volume (Year): 07 (2011)
    Issue (Month): 1-2 ()
    Pages:

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    Handle: RePEc:ags:reapec:143421

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    Web page: http://www.lincoln.ac.nz/story11874.html

    Related research

    Keywords: FDI; Bilateral Investment Treaty; domestic content; International Development; International Relations/Trade; F21; F53; O24; O16;

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    1. Bubb, Ryan J. & Rose-Ackerman, Susan, 2007. "BITs and bargains: Strategic aspects of bilateral and multilateral regulation of foreign investment," International Review of Law and Economics, Elsevier, vol. 27(3), pages 291-311, September.
    2. Neumayer, Eric & Spess, Laura, 2005. "Do bilateral investment treaties increase foreign direct investment to developing countries?," World Development, Elsevier, vol. 33(10), pages 1567-1585, October.
    3. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, vol. 54(1), pages 89-113.
    4. Anil Kumar, 2007. "Does foreign direct investment help emerging economies?," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(jan).
    5. Assaf Razin & Efraim Sadka & Hui Tong, 2005. "Bilateral FDI Flows: Threshold Barriers and Productivity Shocks," NBER Working Papers 11639, National Bureau of Economic Research, Inc.
    6. Grossman, Gene M, 1981. "The Theory of Domestic Content Protection and Content Preference," The Quarterly Journal of Economics, MIT Press, vol. 96(4), pages 583-603, November.
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