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

[journal article]

Busse, Matthias; Königer, Jens; Nunnenkamp, Peter

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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-214104

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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 economic cooperation; direct investment; developing country; foreign investment
Classification Economic Policy
Free Keywords FDI; Multinational corporations; Bilateral investment treaties; C33; F21; F23;
Document language English
Publication Year 2010
Page/Pages p. 147-177
Journal Review of World Economics, 146 (2010) 1
DOI http://dx.doi.org/10.1007/s10290-009-0046-x
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)