Investment agreements and the fragmentation of firms across countries

Timm Betz (), Amy Pond () and Weiwen Yin ()
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Timm Betz: Technical University of Munich
Amy Pond: Technical University of Munich
Weiwen Yin: The Education University of Hong Kong

The Review of International Organizations, 2021, vol. 16, issue 4, No 2, 755-791

Abstract: Abstract We examine the global ownership structure of firms in the context of the investment regime. Investment agreements extend valuable privileges to firms invested abroad. But, these privileges only apply to firms whose assets are owned in a country that has signed an agreement with their host market; firms lack protections under investment agreements for many of their target markets. We argue that, by strategically locating subsidiaries in ‘transit’ countries, firms systematically expand their access to investment agreements. This firm-specific access to investment agreements through transit countries also has implications for investment flows: Transit countries receive more inflows and outflows of investment. Moreover, the impact of agreements declines over time and treaty partners, as seemingly newly protected firms have previously gained coverage through subsidiaries. Drawing on subsidiary location choices of the world’s largest firms, as well as data on firm ownership structures and aggregate investment flows, we present systematic evidence consistent with this argument. The paper highlights the importance of the global ownership structure of firms in an environment of heterogeneous international rules and discusses new distributional consequences of the investment regime.

Keywords: Bilateral investment treaty; Foreign direct investment; Ownership structure; Investor-state dispute settlement; MNCs; Regulatory chill (search for similar items in EconPapers)
JEL-codes: F21 F53 F59 K33 L22 M16 O19 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11558-020-09402-0

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