Kiel Working Papers, Kiel Institute for World Economics
No 1647:
Do Trade and Investment Agreements Lead to More FDI? Accounting for Key Provisions Inside the Black Box
Axel Berger, Matthias Busse, Peter Nunnenkamp and Martin Roy
Abstract: The previous literature provides a highly ambiguous
picture on the impact of trade and investment agreements on FDI. Most
empirical studies ignore the actual content of BITs and RTAs, treating them
as "black boxes", despite the diversity of investment provisions
constituting the essence of these agreements. We overcome this serious
limitation by analyzing the impact of modalities on the admission of FDI
and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI
flows between 1978 and 2004. We find that FDI reacts positively to RTAs
only if they offer liberal admission rules. Dispute settlement provisions
play a minor role. While RTAs without strong investment provisions may even
discourage FDI, the reactions to BITs are less discriminate with foreign
investors responding favourably to the mere existence of BITs
Keywords: foreign direct investment, bilateral investment treaties, regional trade agreements, admission rules, investor-state dispute settlement; (follow links to similar papers)
JEL-Codes: F21,; F23,; K33; (follow links to similar papers)
26 pages, September 2010
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