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North†South foreign direct investment and bilateral investment treaties

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  • Rod Falvey
  • Neil Foster†McGregor

Abstract

Bilateral investment treaties (BITs) have become increasingly popular as a means of encouraging foreign direct investment (FDI) from developed to developing countries. We adopt a difference†in†difference analysis to deal with the problem of self†selection when estimating the effects of BITs on FDI flows from a sample of OECD countries to a broader sample of lesser developed countries. Our results indicate that forming a BIT with a developed country significantly increases FDI inflows to developing countries. We further find that the development of new FDI flows and the reinvigoration of deteriorating FDI relationships accounts for the majority of the increase in FDI flows due to BIT formation.

Suggested Citation

  • Rod Falvey & Neil Foster†McGregor, 2018. "North†South foreign direct investment and bilateral investment treaties," The World Economy, Wiley Blackwell, vol. 41(1), pages 2-28, January.
    • Handle: RePEc:bla:worlde:v:41:y:2018:i:1:p:2-28
    DOI: 10.1111/twec.12539
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    Cited by:

    1. Josef C. Brada & Zdenek Drabek & Ichiro Iwasaki, 2021. "Does Investor Protection Increase Foreign Direct Investment? A Meta‐Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 35(1), pages 34-70, February.
    2. Seungjun Kim, 2023. "Protecting home: how firms’ investment plans affect the formation of bilateral investment treaties," The Review of International Organizations, Springer, vol. 18(4), pages 667-692, October.
    3. Parfait Bihkongnyuy Beri & Gabila Fohtung Nubong, 2021. "Impact of bilateral investment treaties on foreign direct investment in Africa," African Development Review, African Development Bank, vol. 33(3), pages 439-451, September.
    4. INADA Mitsuo & JINJI Naoto, 2020. "To What Degree does Policy Uncertainty Affect Foreign Direct Investment? Micro-evidence from Japan's International Investment Agreements," Discussion papers 20022, Research Institute of Economy, Trade and Industry (RIETI).
    5. Naoto JINJI & Mitsuo INADA, 2022. "The Impact of Policy Uncertainty on Foreign Direct Investment: Micro-Evidence from Japan's International Investment Agreements," Discussion papers e-21-010, Graduate School of Economics , Kyoto University.

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