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A Theoretical Perspective on Multilateral Agreements on Investment

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  • Alessandro Turrini
  • Dieter M. Urban

Abstract

Why do we observe some developing countries objecting to the prospect of a Multilateral Agreement on Investment (MAI), even though they have been keen to liberalize investment in preferential agreements in recent years? In this paper, we analyze the issue of MAI implementation and assess the welfare consequences of such kind of agreements. In our model, participation to MAI involves a tradeoff between less rent extraction from multinational firms (MNEs) and more abundant FDI inflows. At equilibrium, either all countries enter MAI, or all countries stay out, or only some of them enter. Coordination problems may induce multiple equilibria: the three types of equilibria may coexist. So, the implementation of MAI may depend not only on structural factors but also on the general “political climate.” When all countries join MAI, world welfare is maximized because this minimizes the hold‐up problem faced by MNEs and stimulates investment. However, in an asymmetric world, welfare gains are not guaranteed for all countries.

Suggested Citation

  • Alessandro Turrini & Dieter M. Urban, 2008. "A Theoretical Perspective on Multilateral Agreements on Investment," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 1023-1043, November.
    • Handle: RePEc:bla:reviec:v:16:y:2008:i:5:p:1023-1043
    DOI: 10.1111/j.1467-9396.2008.00766.x
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    References listed on IDEAS

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    Cited by:

    1. Jiahua CHE & Gerald WILLMANN, 2009. "The economics of a multilateral investment agreement," Working Papers of Department of Economics, Leuven ces09.04, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    2. Horn, Henrik & Tangerås, Thomas, 2021. "Economics of international investment agreements," Journal of International Economics, Elsevier, vol. 131(C).
    3. Julian Donaubauer & Eric Neumayer & Peter Nunnenkamp, 2018. "Winning or losing in investor‐to‐state dispute resolution: The role of arbitrator bias and experience," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 892-916, September.
    4. Horn, Henrik & Tangerås, Thomas, 2016. "Economics and Politics of International Investment Agreements," Working Paper Series 1140, Research Institute of Industrial Economics.

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