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Heterogeneous effects of bilateral investment treaties

Author

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  • Falvey, Rod

    (Bond Business School, Bond University)

  • Foster-McGregor, Neil

    (UNU-MERIT, and Maastricht University)

Abstract

Bilateral Investment Treaties (BITs) are an increasingly used policy instrument to encourage FDI inflows, particularly inflows into developing countries. In this paper we estimate a gravity model of FDI flows from a sample of OECD countries to a broader sample of developing economies, examining the impact of BITs on these flows. BITs are signed between highly heterogeneous country-pairs, with important differences found in terms of the institutional and economic distance between BIT signatories. These differences may help explain the mixed results on the effects of BITs on FDI flows in the existing literature, with our exploration of non-linearities in this relationship suggesting that the effects of BITs are increasing in the difference in GDP and GDP per capita between source and host. BITs appear to have no impact upon FDI flows for country-pairs that are too dissimilar in terms of the strength of their political institutions.

Suggested Citation

  • Falvey, Rod & Foster-McGregor, Neil, 2017. "Heterogeneous effects of bilateral investment treaties," MERIT Working Papers 2017-027, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2017027
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    References listed on IDEAS

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    Cited by:

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    2. Glitsch, Julian & Godart, Olivier N. & Görg, Holger & Mösle, Saskia & Steglich, Frauke, 2020. "Lagging behind? German Foreign Direct Investment in Africa," KCG Policy Papers 5, Kiel Centre for Globalization (KCG).
    3. Amendolagine, Vito & Prota, Francesco, 2021. "Bilateral investment treaties and backward linkages in Sub-Saharan Africa," International Economics, Elsevier, vol. 165(C), pages 172-185.
    4. Federico Carril‐Caccia & Elena Pavlova, 2020. "Mergers and acquisitions & trade: A global value chain analysis," The World Economy, Wiley Blackwell, vol. 43(3), pages 586-614, March.
    5. Josef C. Brada & Zdenek Drabek & Ichiro Iwasaki, 2021. "Does Investor Protection Increase Foreign Direct Investment? A Meta‐Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 35(1), pages 34-70, February.
    6. Jordi Paniagua & Cristina Villó & Maria Escrivà-Beltran, 2022. "Cross-Border Higher Education: The Expansion of International Branch Campuses," Research in Higher Education, Springer;Association for Institutional Research, vol. 63(6), pages 1037-1057, September.
    7. Youngmin BAEK & HAYAKAWA Kazunobu, 2022. "Fixed Costs in Exporting and Investing," Discussion papers 22023, Research Institute of Economy, Trade and Industry (RIETI).
    8. Elena Kotyrlo & Hryhorii M. Kalachyhin, 2023. "The effects of India's bilateral investment treaties termination on foreign direct investment inflows," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(4), pages 1007-1033, October.
    9. Priyanka Kher & Dongwook Chun, 2020. "Policy Options to Mitigate Political Risk and Attract FDI," World Bank Publications - Reports 34380, The World Bank Group.

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    More about this item

    Keywords

    Foreign Direct Investment; FDI Inflows; Developing countries; Economic development; Bilateral Investment Treaties; Heterogeneous Effects;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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