What Type of FDI is Attracted by Bilateral Investment Treaties?

LICOS Discussion Paper 346/2014

49 Pages Posted: 25 Feb 2014

See all articles by Liesbeth Colen

Liesbeth Colen

KU Leuven - Centre for Institutions and Economic Performance (LICOS)

Damiaan Persyn

KU Leuven; IZA Institute of Labor Economics

Andrea Guariso

Trinity College Dublin

Date Written: 2014

Abstract

Developing countries have increasingly engaged in Bilateral Investment Treaties (BITs) to attract foreign investors. While it is found that BITs are successful in attracting FDI, we argue that the effectiveness of BITs depends on the type of FDI. We find the effect of BITs to differ importantly across sectors of investment. FDI characterized by higher sunk investment costs responds more strongly to the signing of BITs. Given that the development impact of FDI differs according to the sector of investment, our results raise concerns on the effectiveness of BITs in attracting FDI in those sectors where it is considered most beneficial.

Keywords: investment treaties; foreign direct investment; sunk costs; Central and Eastern Europe; development

Suggested Citation

Colen, Liesbeth and Persyn, Damiaan and Guariso, Andrea, What Type of FDI is Attracted by Bilateral Investment Treaties? (2014). LICOS Discussion Paper 346/2014, Available at SSRN: https://ssrn.com/abstract=2400429 or http://dx.doi.org/10.2139/ssrn.2400429

Liesbeth Colen (Contact Author)

KU Leuven - Centre for Institutions and Economic Performance (LICOS) ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium

Damiaan Persyn

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andrea Guariso

Trinity College Dublin ( email )

Arts Building
Room 3014
Dublin
Ireland

HOME PAGE: http://www.andreaguariso.net

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