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Are stricter investment rules contagious? Host country competition for foreign direct investment through international agreements

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  • Eric Neumayer

    (London School of Economics and Political Science (LSE))

  • Peter Nunnenkamp

    () (Kiel Institute for the World Economy)

  • Martin Roy

Abstract

Abstract We argue that competitive diffusion is a driver of the trend toward international investment agreements with stricter investment rules, namely defensive moves of developing countries concerned about foreign direct investment (FDI) diversion in favor of competing host countries. Accounting for spatial dependence in the formation of bilateral investment treaties and preferential trade agreements that contain investment provisions, we find that the increase in agreements with stricter provisions on investor-to-state dispute settlement and pre-establishment national treatment is a contagious process. Specifically, a developing country is more likely to sign an agreement with weak investment provisions if other developing countries that compete for FDI from the same developed country have previously signed agreements with similarly weak provisions. Conversely, contagion in agreements with strong provisions exclusively derives from agreements with strong provisions that other FDI-competing developing countries have previously signed with a specific developed source country of FDI.

Suggested Citation

  • Eric Neumayer & Peter Nunnenkamp & Martin Roy, 2016. "Are stricter investment rules contagious? Host country competition for foreign direct investment through international agreements," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 177-213, February.
  • Handle: RePEc:spr:weltar:v:152:y:2016:i:1:d:10.1007_s10290-015-0231-z
    DOI: 10.1007/s10290-015-0231-z
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    Cited by:

    1. Eckhard Janeba, 2016. "Regulatory Chill and the Effect of Investor State Dispute Settlements," CESifo Working Paper Series 6188, CESifo Group Munich.
    2. Kohler, Wilhelm Kaspar & Stähler, Frank, 2016. "The Economics of Investor Protection: ISDS versus National Treatment," Annual Conference 2016 (Augsburg): Demographic Change 145652, Verein für Socialpolitik / German Economic Association.
    3. repec:ura:ecregj:v:1:y:2017:i:3:p:959-970 is not listed on IDEAS
    4. Dominique Bruhn, 2015. "Coverage and enforceability of investment rules in PTAs: the role of global value chain trade and regulatory differences," FIW Working Paper series 142, FIW.
    5. repec:bla:ausecr:v:50:y:2017:i:2:p:152-168 is not listed on IDEAS
    6. Jovanović, Miroslav, 2016. "Emerging Mega International Blocs: Limits and Prospects," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(4), pages 271-316.

    More about this item

    Keywords

    Bilateral investment treaties; Preferential trade agreements; Investment provisions; Competition for FDI; Spatial dependence;

    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

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