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Own interest and foreign need: Are bilateral investment treaty programmes similar to aid allocation?

  • Eric Neumayer

Bilateral investment treaties (BITs) have become the most important legal mechanism for the encouragement of foreign direct investment (FDI) in developing countries. Yet practically no systematic evidence exists on what motivates capital-exporting developed countries to sign BITs earlier with some developing countries than with others, if at all. The theoretical framework from the aid allocation literature suggests that developed countries pursue a mixture of own interest and foreign need. It also suggests differences between the big developed countries and a group of smaller ones known as like-minded countries. We find evidence that both economic and political interests determine the scheduling of BITs. However, with one exception, foreign need as measured by per capita income is also a factor. These results suggest that BIT programmes can be explained employing the same framework successfully applied to the allocation of aid. At the same time, own interest seems to be substantively more important than developing country need when it comes to BITs and the like-minded countries make no exception.

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Paper provided by EconWPA in its series International Finance with number 0412005.

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Date of creation: 15 Dec 2004
Date of revision: 29 Nov 2005
Handle: RePEc:wpa:wuwpif:0412005
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  1. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  2. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, vol. 29(9), pages 1593-1610, September.
  3. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  4. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, vol. 54(1), pages 89-113.
  5. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
  6. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766, March.
  7. Jennifer Tobin & Susan Rose-Ackerman, 2003. "Foreign Direct Investment and the Business Environment in Developing Countries: the Impact of Bilateral Investment Treaties," William Davidson Institute Working Papers Series 587, William Davidson Institute at the University of Michigan.
  8. Mary Hallward-Driemeier, 2003. "Do bilateral investment treaties attract foreign direct investment? Only a bit - and they could bite," Policy Research Working Paper Series 3121, The World Bank.
  9. Easterly, William, 1999. " Life during Growth," Journal of Economic Growth, Springer, vol. 4(3), pages 239-76, September.
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