Do Trade and Investment Agreements Lead to More FDI? Accounting for Key Provisions Inside the Black Box
German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Ruhr-University Bochum; HWWI - Hamburg Institute of International Economics
University of Kiel
World Trade Organization (WTO) - Trade in Services Division
September 1, 2010
Kiel Working Paper No. 1647
The previous literature provides a highly ambiguous picture on the impact of trade and investment agreements on FDI. Most empirical studies ignore the actual content of BITs and RTAs, treating them as black boxes, despite the diversity of investment provisions constituting the essence of these agreements. We overcome this serious limitation by analyzing the impact of modalities on the admission of FDI and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI flows between 1978 and 2004. We find that FDI reacts positively to RTAs only if they offer liberal admission rules. Dispute settlement provisions play a minor role. While RTAs without strong investment provisions may even discourage FDI, the reactions to BITs are less discriminate with foreign investors responding favourably to the mere existence of BITs.
Number of Pages in PDF File: 28
Keywords: foreign direct investment, bilateral investment treaties, regional trade agreements, admission rules, investor-state dispute settlement
JEL Classification: F21, F23, K33working papers series
Date posted: May 13, 2011
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