FDI promotion through bilateral investment treaties: more than a bit?

Matthias Busse, Jens Königer and Peter Nunnenkamp ()
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Jens Königer: Ruhr University Bochum
Peter Nunnenkamp: Kiel Institute for the World Economy

Review of World Economics (Weltwirtschaftliches Archiv), 2010, vol. 146, issue 1, No 7, 147-177

Abstract: Abstract Policy makers 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 data set 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 probably not for unilateral capital account liberalization.

Keywords: FDI; Multinational corporations; Bilateral investment treaties (search for similar items in EconPapers)
JEL-codes: C33 F21 F23 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (15)

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DOI: 10.1007/s10290-009-0046-x

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