Kiel Working Papers, Kiel Institute for World Economics
No 1403:
FDI Promotion through Bilateral Investment Treaties: More Than a Bit?
Matthias Busse, Jens Königer and Peter Nunnenkamp
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 an extensive
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. BITs may
even substitute for weak domestic institutions, though not for unilateral
capital account liberalization.
Keywords: FDI, Multinational Corporations, Bilateral Investment Treaties; (follow links to similar papers)
JEL-Codes: C33,; F21,; F23; (follow links to similar papers)
37 pages, February 2008
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