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FDI Promotion through Bilateral Investment Treaties More Than a Bit

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  • Busse, Matthias
  • Königer, Jens
  • Nunnenkamp, Peter

Abstract

Policymakers in developing countries have increasingly pinned their hopes on bilateral investment treaties (BITs) in order to improve their chances in the worldwide competition for foreign direct investment (FDI). However, the effectiveness of BITs in inducing higher FDI inflows is still open to debate. It is in several ways that we attempt to clarify the inconclusive empirical findings of earlier studies. We cover a much larger sample of host and source countries by drawing on a previously unpublished dataset on bilateral FDI flows. Furthermore, we account for unilateral FDI liberalization, in order not to overestimate the effect of BITs, as well as for the potential endogeneity of BITs. Employing a gravity-type model and various model specifications, including an instrumental variable approach, we find that BITs do promote FDI flows to developing countries. In addition, BITs are likely to act as a substitute for unilateral capital account liberalization.

Suggested Citation

  • Busse, Matthias & Königer, Jens & Nunnenkamp, Peter, 2008. "FDI Promotion through Bilateral Investment Treaties More Than a Bit," Open Access Publications from Kiel Institute for the World Economy 39891, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkie:39891
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    References listed on IDEAS

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    Cited by:

    1. Kamel ABDELLAH ( GREThA, CNRS, UMR 5113 & ISG, UNIVERSITE DE TUNIS) & Dalila NICET-CHENAF (GREThA, CNRS, UMR 5113) & Eric ROUGIER (GREThA, CNRS, UMR 5113), 2012. "FDI and macroeconomic volatility: A close-up on the source countries," Cahiers du GREThA 2012-21, Groupe de Recherche en Economie Théorique et Appliquée.
    2. Matthias Busse & Carsten Hefeker & Signe Nelgen, 2013. "Foreign Direct Investment and Exchange Rate Regimes," Economics Bulletin, AccessEcon, vol. 33(1), pages 843-858.
    3. Sosa Andrés, Maximiliano & Nunnenkamp, Peter & Busse, Matthias, 2013. "What drives FDI from non-traditional sources? A comparative analysis of the determinants of bilateral FDI flows," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-53.
    4. Selen Sarisoy Guerin, 2011. "Do the European Union’s Bilateral Investment Treaties Matter? The Way Forward After Lisbon," Chapters,in: The Economic Crisis and European Integration, chapter 6 Edward Elgar Publishing.
    5. Axel Dreher & Andreas Fuchs, 2011. "Rogue Aid? The Determinants of China's Aid Allocation," CESifo Working Paper Series 3581, CESifo Group Munich.
    6. Anokye M. Adam, 2013. "Currency Union and Foreign Direct Investment Inflow: Evidence from Economic Community of West African States (ECOWAS)," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 63(1-2), pages 121-132, June.
    7. Baetens, Freya, 2015. "Transatlantic Investment Treaty Protection – A Response to Poulsen, Bonnitcha and Yackee," CEPS Papers 10297, Centre for European Policy Studies.

    More about this item

    Keywords

    FDI; Multinational Corporations; Bilateral Investment Treaties;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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