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FDI Promotion through Bilateral Investment Treaties More Than a Bit

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  • Busse, Matthias
  • Königer, Jens
  • Nunnenkamp, Peter

Abstract

Policymakers in developing countries have increasingly pinned their hopes on bilateral investment treaties (BITs) in order to improve their chances in the worldwide competition for foreign direct investment (FDI). However, the effectiveness of BITs in inducing higher FDI inflows is still open to debate. It is in several ways that we attempt to clarify the inconclusive empirical findings of earlier studies. We cover a much larger sample of host and source countries by drawing on a previously unpublished dataset on bilateral FDI flows. Furthermore, we account for unilateral FDI liberalization, in order not to overestimate the effect of BITs, as well as for the potential endogeneity of BITs. Employing a gravity-type model and various model specifications, including an instrumental variable approach, we find that BITs do promote FDI flows to developing countries. In addition, BITs are likely to act as a substitute for unilateral capital account liberalization. --

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Bibliographic Info

Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Zurich 2008 with number 4.

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Date of creation: 2008
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Handle: RePEc:zbw:gdec08:4

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Keywords: FDI; Multinational Corporations; Bilateral Investment Treaties;

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References

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  9. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," NBER Working Papers 6030, National Bureau of Economic Research, Inc.
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  12. Mutti, John & Grubert, Harry, 2004. "Empirical asymmetries in foreign direct investment and taxation," Journal of International Economics, Elsevier, Elsevier, vol. 62(2), pages 337-358, March.
  13. Jennifer Tobin & Susan Rose-Ackerman, 2003. "Foreign Direct Investment and the Business Environment in Developing Countries: the Impact of Bilateral Investment Treaties," William Davidson Institute Working Papers Series 587, William Davidson Institute at the University of Michigan.
  14. Mary Hallward-Driemeier, 2003. "Do bilateral investment treaties attract foreign direct investment? Only a bit - and they could bite," Policy Research Working Paper Series 3121, The World Bank.
  15. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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  17. Nunnenkamp, Peter & Pant, Manoj, 2003. "Why the economic case for a multilateral agreement on investment is weak," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 4323, Kiel Institute for the World Economy (IfW).
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Cited by:
  1. Axel Dreher & Andreas Fuchs, 2011. "Rogue Aid? The Determinants of China’s Aid Allocation," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 93, Courant Research Centre PEG, revised 29 Feb 2012.
  2. Matthias Busse & Carsten Hefeker & Signe Nelgen, 2013. "Foreign Direct Investment and Exchange Rate Regimes," Economics Bulletin, AccessEcon, vol. 33(1), pages 843-858.
  3. Maximiliano Sosa Andrés & Peter Nunnenkamp & Matthias Busse, 2012. "What Drives FDI from Non-traditional Sources? A Comparative Analysis of the Determinants of Bilateral FDI Flows," Kiel Working Papers 1755, Kiel Institute for the World Economy.
  4. Berger, Axel & Busse, Matthias & Nunnenkamp, Peter & Roy, Martin, 2011. "More stringent BITs, less ambiguous effects on FDI? Not a bit!," Economics Letters, Elsevier, Elsevier, vol. 112(3), pages 270-272, September.
  5. 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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