Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments?

30 Pages Posted: 14 May 2010

See all articles by Chang Hoon Oh

Chang Hoon Oh

Simon Fraser University (SFU) - Beedie School of Business

Michele U. Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche

Date Written: May 14, 2010

Abstract

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.

Keywords: bilateral investment treaty, foreign direct investment, gravity equation, network diversity

JEL Classification: F21, F53

Suggested Citation

Oh, Chang Hoon and Fratianni, Michele, Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments? (May 14, 2010). Available at SSRN: https://ssrn.com/abstract=1607989 or http://dx.doi.org/10.2139/ssrn.1607989

Chang Hoon Oh (Contact Author)

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Michele Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3360 (Phone)
812-855-3354 (Fax)

Universita' Politecnica delle Marche ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
39-071-2207120 (Phone)

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