The effects of bilateral tax treaties on FDI activity have been unexplored, despite significant ongoing activities by countries to negotiate and ratify these treaties. This paper estimates the impact of bilateral tax treaties using both U.S. inbound and outbound FDI over the period 1966-1992. Our estimates suggest a statistically significant average annual increase of FDI activity for each additional year of a treaty which ranges from 2% to 8%, depending on the FDI activity measure and empirical framework we employ. Examination for nonlinear effects of treaty age on FDI activity suggests that while treaties have an immediate impact on FDI flows, there is a substantial lag before treaty adoption positively affects FDI stocks and affiliate sales. Finally, our results suggest that bilateral tax treaties have an effect on investment outside of the withholding tax rates they alter, which may include the commitment and risk reduction effects of these treaties.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
7929.
Length: Date of creation: Oct 2000 Date of revision: Handle: RePEc:nbr:nberwo:7929
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Find related papers by JEL classification: 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.:
James R. Markusen & Keith E. Maskus, 2001.
"Multinational Firms: Reconciling Theory and Evidence,"
NBER Chapters,
in: Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey, pages 71-98
National Bureau of Economic Research, Inc.
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