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Foreign Direct Investment and Bilateral Investment Treaties an International Political Perspective

Author

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  • Rodolphe Desbordes

    (IRES-UCL et University of Strathclyde)

  • Vincent Vicard

    (Centre d'Economie de la Sorbonne)

Abstract

Most of the literature dealing with the location of foreign direct investment (FDI) has ignored the fact that multinational enterprises (MME) are not stateless and that their activities take place within an international political system: the return on their FDI can be influenced by the quality of interstate political relations between their home and host countries. This paper investigates whether the quality of interstate political relations between countries influences the volume of bilateral FDI. Thanks to the construction of a new indicator of the quality of interstate political relations, it is found that better interstate political relations foster bilateral FDI, through the signature of a bilateral investment treaty (BIT) may dampen the impact of their fluctuations. In addition, the effect of a variation in the quality of domestic institutions increases with the entry into force of a BIT, suggesting that the latter signals the credibility of an institutional improvement. Overall, when both indirect effects are considered, the entry into force of a BIT increases bilateral FDI stocks by 16%, on average, a lower impact than those found in previous studies. This effect nevertheless significantly differs according to the quality of both interstate political relations and domestic institutions

Suggested Citation

  • Rodolphe Desbordes & Vincent Vicard, 2007. "Foreign Direct Investment and Bilateral Investment Treaties an International Political Perspective," Documents de travail du Centre d'Economie de la Sorbonne bla07045, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:bla07045
    DOI: 10.1016/j.jce.2009.05.001
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    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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