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FDI Promotion through Bilateral Investment Treaties More Than a Bit

Matthias Busse, Jens Königer and Peter Nunnenkamp

No 4, Proceedings of the German Development Economics Conference, Zurich 2008 from Verein für Socialpolitik, Research Committee Development Economics

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 We cover a much larger sample of host and source countries by drawing on a previously unpublished dataset on bilateral FDI flows.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. In addition, BITs are likely to act as a substitute 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: 2008
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Working Paper: FDI Promotion through Bilateral Investment Treaties More Than a Bit (2008) Downloads
Working Paper: FDI promotion through bilateral investment treaties: More than a bit? (2008) Downloads
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