Do Bits Really Work? Revisiting the Empirical Link between Investment Treaties and Foreign Direct Investment

Abstract

In this article I replicate, expand, and critique an earlier analysis by Neumayer and Spess claiming to have identified strong evidence that developing countries that sign bilateral investment treaties (BITs) enjoy massive increases in foreign direct investment (FDI). In the face of a series of relatively small but very justifiable changes in methodology and model specification the apparently positive effect of BITs on FDI largely (and in some cases entirely) falls from statistical significance. I conclude that the case for BITs is far weaker than Neumayer and Spess suggest.

Keywords: BITs bilateral investment treaties, FDI foreign direct investment