Foreign Direct Investment and Bilateral Investment Treaties: an International Political Perspective

Rodolphe Desbordes and Vincent Vicard

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper investigates the effect of the implementation of bilateral investment treaties (BITs) on the bilateral stocks of foreign direct investment (FDI). We argue that the understanding of how BITs affect FDI requires recognising that multinational enterprises (MNEs) are not Stateless and that their investment return may well depend on the quality of political relations between the home and host countries. Using bilateral FDI data and event data to measure political interactions between countries, we show that the effect of the entry into force of a BIT crucially depends on the quality of political relations between the signatory countries; it increases FDI more between countries with tense relationships than between friendly countries. We also find evidence that BITs and good domestic institutions are complementary. BITs should therefore be understood as a mechanism for host governments to credibly commit not to expropriate investors in the future.

Keywords: Foreign Direct Investment; Interstate Political Relations; Bilateral Investment Treaties; Institutions (search for similar items in EconPapers)
Date: 2009-09
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Published in Journal of Comparative Economics, 2009, 37 (3), pp.372-386. ⟨10.1016/j.jce.2009.05.001⟩

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Related works:
Journal Article: Foreign direct investment and bilateral investment treaties: An international political perspective (2009)
Working Paper: Foreign Direct Investment and Bilateral Investment Treaties: an International Political Perspective (2009)
Working Paper: Foreign Direct Investment and Bilateral Investment Treaties: an International Political Perspective (2009)
Working Paper: Foreign direct investment and bilateral investment treaties, an international political perspective (2007)
Working Paper: Foreign direct investment and bilateral investment treaties, an international political perspective (2007)
Working Paper: Foreign Direct Investment and Bilateral Investment Treaties an International Political Perspective (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00395101

DOI: 10.1016/j.jce.2009.05.001

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