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The Economics of a Multilateral Investment Agreement

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Author Info
Jiahua Che ()
Gerald Willmann ()

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Abstract

This 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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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2562.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2562

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Related research
Keywords: multilateral investment agreement; FDI; trade policy;

Find related papers by JEL classification:
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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341.
  2. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 63-80, January. [Downloadable!] (restricted)
  3. Bernd Hayo & Stefan Voigt, 2008. "The Relevance of Judicial Procedure for Economic Growth," MAGKS Papers on Economics 200828, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
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  4. Bendor, Jonathan & Mookherjee, Dilip, 1990. "Norms, Third-Party Sanctions, and Cooperation," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 33-63, Spring.
  5. Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December. [Downloadable!] (restricted)
  6. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March. [Downloadable!] (restricted)
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This page was last updated on 2009-12-1.

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