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What type of FDI is attracted by bilateral investment treaties?

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Listed:
  • Liesbeth Colen
  • Damiaan Persyn
  • Andrea Guariso

Abstract

Developing countries have increasingly engaged in Bilateral Investment Treaties (BITs) to attract foreign investors. While it is found that BITs are successful in attracting FDI, we argue that the effectiveness of BITs depends on the type of FDI. We find the effect of BITs to differ importantly across sectors of investment. FDI characterized by higher sunk investment costs responds more strongly to the signing of BITs. Given that the development impact of FDI differs according to the sector of investment, our results raise concerns on the effectiveness of BITs in attracting FDI in those sectors where it is considered most beneficial.

Suggested Citation

  • Liesbeth Colen & Damiaan Persyn & Andrea Guariso, 2014. "What type of FDI is attracted by bilateral investment treaties?," LICOS Discussion Papers 34614, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    • Handle: RePEc:lic:licosd:34614
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    File URL: http://feb.kuleuven.be/drc/licos/publications/dp/dp346
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    Cited by:

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    2. 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.
    3. World Bank Group, 2017. "Investment Policy and Promotion Diagnostics and Tools," World Bank Publications - Reports 28281, The World Bank Group.
    4. Teehankee, Manuel A.J., 2018. "The Philippines' Readiness for the TPP: Focus on Investor-State Dispute Settlement," Philippine Journal of Development PJD 2016 Vol. 43 No. 2c, Philippine Institute for Development Studies.
    5. Sjöholm, Fredrik, 2021. "Industrial Policy and Foreign Direct Investment," Working Paper Series 1400, Research Institute of Industrial Economics.
    6. Basedow, Robert, 2020. "The EU's international investment policy ten years on: the policy-making implications of unintended competence transfers," LSE Research Online Documents on Economics 105161, London School of Economics and Political Science, LSE Library.

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    Keywords

    investment treaties; foreign direct investment; sunk costs; Central and Eastern Europe; development;
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