The Economics of a Multilateral Investment Agreement
AbstractThis paper models a multilateral agreement on investment (MAI) as a coordination device. Multinational enterprises can invest in any number of countries. Without a multilateral investment agreement, expropriation triggers an investment stop by the single MNE. Under a multilateral agreement, expropriation leads to a joint reaction by all MNEs. Switching to such a regime increases worldwide FDI and raises the world interest rate. Distinguishing three groups of countries, we show that industrialized countries experience an outflow of capital but benefit overall due to an increase in repatriated profits. Middle income countries are likely to gain from increased inward FDI, whereas least developed countries lose because they receive less FDI. Our results explain the stylized fact that a multilateral investment agreement was opposed by least developed nations and certain groups in rich countries.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2562.
Date of creation: 2009
Date of revision:
multilateral investment agreement; FDI; trade policy;
Other versions of this item:
- Jiahua CHE & Gerald WILLMANN, 2009. "The economics of a multilateral investment agreement," Center for Economic Studies - Discussion papers, Katholieke Universiteit Leuven, Centrum voor Economische StudiÃ«n ces09.04, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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