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Foreign direct investment and bilateral investment treaties: An international political perspective

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  • Desbordes, Rodolphe
  • Vicard, Vincent

Abstract

This paper investigates the effect of the implementation of bilateral investment treaties (BITs) on the bilateral stocks of foreign direct investment (FDI). We argue that the understanding of how BITs affect FDI requires recognizing that multinational enterprises (MNEs) are not Stateless and that their investment return may well depend on the quality of political relations between the home and host countries. Using bilateral FDI data and event data to measure political interactions between countries, we show that the effect of the entry into force of a BIT crucially depends on the quality of political relations between the signatory countries; it increases FDI more between countries with tense relationships than between friendly countries. We also find evidence that BITs and good domestic institutions are complementary. BITs should therefore be understood as a mechanism for host governments to credibly commit not to expropriate investors in the future.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 37 (2009)
Issue (Month): 3 (September)
Pages: 372-386

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Handle: RePEc:eee:jcecon:v:37:y:2009:i:3:p:372-386

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Foreign direct investment Interstate political relations Bilateral investment treaties Institutions;

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Citations

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Cited by:
  1. Ronald B Davies & Pehr-Johan Norbäck & Ayça Tekin-Koru, 2007. "The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata," Working Papers, Oxford University Centre for Business Taxation 0721, Oxford University Centre for Business Taxation.
  2. Wasseem Mina, 2013. "Beyond FDI: The Influence of Bilateral Investment Treaties on Debt," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper1325, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Dalila Nicet-Chenaf & Eric Rougier, 2014. "Source and host country volatility and FDI: A gravity analysis of European investment to Middle East and North Africa," Working Papers, HAL hal-00985795, HAL.
  4. Chang Hoon Oh & Michele Fratianni, 2010. "Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments?," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2010-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  5. Mina, Wasseem Michel, 2012. "The Institutional Reforms Debate and FDI Flows to the MENA Region: The “Best” Ensemble," World Development, Elsevier, Elsevier, vol. 40(9), pages 1798-1809.
  6. Nikolaos Antonakakis & Gabriele Tondl, 2011. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian Model Averaging," FIW Working Paper series, FIW 076, FIW.
  7. Wasseem MIchel Mina, 2010. "Institutional Reforms Debate and FDI Flows to MENA Region: Does One “Best” Fit All?," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper1034, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Kamel ABDELLAH ( GREThA, CNRS, UMR 5113 & ISG, UNIVERSITE DE TUNIS) & Dalila NICET-CHENAF (GREThA, CNRS, UMR 5113) & Eric ROUGIER (GREThA, CNRS, UMR 5113), 2012. "FDI and macroeconomic volatility: A close-up on the source countries," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2012-21, Groupe de Recherche en Economie Théorique et Appliquée.

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