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The Effectiveness Of Bilateral Investment Treaties In Attracting Foreign Direct Investment: The Case Of Serbia

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  • Radovan Kastratović
  • Predrag Bjelić

Abstract

Over the past several decades there has been increasing competition among countries to attract foreign direct investment, which is often hypothesised to positively affect the development of host countries. Bilateral investment treaties are one of the policy instruments the host countries often use as a means to encourage foreign direct investment inflows. In this study, we aim to explore the effectiveness of bilateral investment treaties in achieving these goals in the case of Serbia. Using the panel data on Serbia and its 198 partner economies observed in the period 2010–2019, we estimate a gravity model of foreign direct investment inflows by applying the Poisson pseudo-maximum likelihood method. We found that ratified bilateral investment treaties have a statistically significant positive effect on foreign direct investment inflows in Serbia. Furthermore, the quality of the treaties was found to positively affect the inflows, whereby the anti-discriminatory provisions seem to be the most important. The results imply that Serbia could attract more foreign direct investment by concluding new bilateral investment treaties and improving the quality of the existing ones.

Suggested Citation

  • Radovan Kastratović & Predrag Bjelić, 2023. "The Effectiveness Of Bilateral Investment Treaties In Attracting Foreign Direct Investment: The Case Of Serbia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 68(237), pages 37-68, April – J.
    • Handle: RePEc:beo:journl:v:68:y:2023:i:237:p:37-68
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    References listed on IDEAS

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    1. Henk L. M. Kox & Hugo Rojas‐Romagosa, 2020. "How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model," The World Economy, Wiley Blackwell, vol. 43(12), December.
    2. Bhagwat, Vineet & Brogaard, Jonathan & Julio, Brandon, 2021. "A BIT goes a long way: Bilateral investment treaties and cross-border mergers," Journal of Financial Economics, Elsevier, vol. 140(2), pages 514-538.
    3. S. Prehn & B. Brümmer & T. Glauben, 2016. "Gravity model estimation: fixed effects vs. random intercept Poisson pseudo-maximum likelihood," Applied Economics Letters, Taylor & Francis Journals, vol. 23(11), pages 761-764, July.
    4. Michael Frenkel & Benedikt Walter, 2019. "Do bilateral investment treaties attract foreign direct investment? The role of international dispute settlement provisions," The World Economy, Wiley Blackwell, vol. 42(5), pages 1316-1342, May.
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    Keywords

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    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
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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