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Foreign direct investment and bilateral investment treaties: An international political perspective

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  • Desbordes, Rodolphe
  • Vicard, Vincent

Abstract

This paper investigates the effect of the implementation of bilateral investment treaties (BITs) on the bilateral stocks of foreign direct investment (FDI). We argue that the understanding of how BITs affect FDI requires recognizing that multinational enterprises (MNEs) are not Stateless and that their investment return may well depend on the quality of political relations between the home and host countries. Using bilateral FDI data and event data to measure political interactions between countries, we show that the effect of the entry into force of a BIT crucially depends on the quality of political relations between the signatory countries; it increases FDI more between countries with tense relationships than between friendly countries. We also find evidence that BITs and good domestic institutions are complementary. BITs should therefore be understood as a mechanism for host governments to credibly commit not to expropriate investors in the future.

Suggested Citation

  • Desbordes, Rodolphe & Vicard, Vincent, 2009. "Foreign direct investment and bilateral investment treaties: An international political perspective," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 372-386, September.
  • Handle: RePEc:eee:jcecon:v:37:y:2009:i:3:p:372-386
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    Cited by:

    1. Chang Hoon Oh & Michele Fratianni, 2010. "Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments?," Mo.Fi.R. Working Papers 43, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    2. Williams, Christopher & Lukoianova (Vashchilko), Tatiana & Martinez, Candace A., 2017. "The moderating effect of bilateral investment treaty stringency on the relationship between political instability and subsidiary ownership choice," International Business Review, Elsevier, vol. 26(1), pages 1-11.
    3. Chenaf-Nicet, Dalila & Rougier, Eric, 2016. "The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements," International Economics, Elsevier, vol. 145(C), pages 66-91.
    4. Hinz, Julian, 2017. "The ties that bind: Geopolitical motivations for economic integration," Kiel Working Papers 2085, Kiel Institute for the World Economy (IfW).
    5. Ronald B. Davies & Pehr-Johan Norbäck & Ayça Tekin-Koru, 2009. "The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata," The World Economy, Wiley Blackwell, vol. 32(1), pages 77-110, January.
    6. 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 2012-21, Groupe de Recherche en Economie Théorique et Appliquée.
    7. Nikolaos Antonakakis & Gabriele Tondl, 2011. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian Model Averaging," FIW Working Paper series 076, FIW.
    8. Mina, Wasseem, 2012. "Beyond FDI: The Influence of Bilateral Investment Treaties on Debt," MPRA Paper 51920, University Library of Munich, Germany.
    9. repec:kap:asiapa:v:35:y:2018:i:1:d:10.1007_s10490-017-9526-z is not listed on IDEAS
    10. repec:eee:riibaf:v:42:y:2017:i:c:p:353-364 is not listed on IDEAS
    11. repec:bla:worlde:v:40:y:2017:i:9:p:1958-1988 is not listed on IDEAS
    12. Jay Dixon & Paul Alexander Haslam, 2016. "Does the Quality of Investment Protection Affect FDI Flows to Developing Countries? Evidence from Latin America," The World Economy, Wiley Blackwell, vol. 39(8), pages 1080-1108, August.
    13. Dalila Nicet-Chenaf & Eric Rougier, 2014. "Source and host country volatility and FDI : A gravity analysis of European investment to Middle East and North Africa," Larefi Working Papers 1405, Larefi, Université Bordeaux 4.
    14. Kahouli, Bassem & Maktouf, Samir, 2015. "The determinants of FDI and the impact of the economic crisis on the implementation of RTAs: A static and dynamic gravity model," International Business Review, Elsevier, vol. 24(3), pages 518-529.
    15. repec:taf:oaefxx:v:3:y:2015:i:1:p:1095851 is not listed on IDEAS
    16. Wasseem MIchel Mina, 2010. "Institutional Reforms Debate and FDI Flows to MENA Region: Does One “Best” Fit All?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1034, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    17. Mina, Wasseem Michel, 2012. "The Institutional Reforms Debate and FDI Flows to the MENA Region: The “Best” Ensemble," World Development, Elsevier, vol. 40(9), pages 1798-1809.
    18. Dalila NICET-CHENAF & Eric ROUGIER, 2014. "Output Volatility And Fdi To Middle East And North African Countries: A Close-Up On The Source Countries," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 40, pages 139-165.

    More about this item

    Keywords

    Foreign direct investment Interstate political relations Bilateral investment treaties Institutions;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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