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The Economics of a Multilateral Investment Agreement

Author

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  • Jiahua Che
  • Gerald Willmann

Abstract

This paper models a multilateral agreement on investment (MAI) as a coordination device. Multinational enterprises can invest in any number of countries. Without a multilateral investment agreement, expropriation triggers an investment stop by the single MNE. Under a multilateral agreement, expropriation leads to a joint reaction by all MNEs. Switching to such a regime increases worldwide FDI and raises the world interest rate. Distinguishing three groups of countries, we show that industrialized countries experience an outflow of capital but benefit overall due to an increase in repatriated profits. Middle income countries are likely to gain from increased inward FDI, whereas least developed countries lose because they receive less FDI. Our results explain the stylized fact that a multilateral investment agreement was opposed by least developed nations and certain groups in rich countries.

Suggested Citation

  • Jiahua Che & Gerald Willmann, 2009. "The Economics of a Multilateral Investment Agreement," CESifo Working Paper Series 2562, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2562
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp2562.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December.
    3. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
    4. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
    5. Bendor, Jonathan & Mookherjee, Dilip, 1990. "Norms, Third-Party Sanctions, and Cooperation," Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(1), pages 33-63, Spring.
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    Cited by:

    1. Dieter M. Urban, 2006. "Multilateral Investment Agreement in a Political Equilibrium," CESifo Working Paper Series 1830, CESifo Group Munich.

    More about this item

    Keywords

    multilateral investment agreement; FDI; trade policy;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • 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

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