Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments?
Chang Hoon Oh
Simon Fraser University (SFU) - Beedie School of Business
Michele U. Fratianni
Indiana University Bloomington - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche
May 14, 2010
This paper finds that the stock of bilateral investment treaties (BIT) is subject to diminishing returns measured in terms of foreign direct investment flows. Diminishing returns are more pronounced among country-pairs that have not signed bilateral investment treaties but have their own BIT network than among country-pairs with their own bilateral investment treaties. For a given country’s BIT network, a multinational enterprise finds more value in investing where a bilateral treaty is in place. This may suggest either stronger property-rights protection or greater latitude to use the host country as an export platform. Our subsidiary finding is that an index of a country’s BIT network diversity appears to be a plausible explanation of the limiting force underlying the diminishing returns of the stock of BITs in a world where there is a mix between horizontally and vertically integrated multinational enterprises.
Number of Pages in PDF File: 30
Keywords: bilateral investment treaty, foreign direct investment, gravity equation, network diversity
JEL Classification: F21, F53working papers series
Date posted: May 14, 2010
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