The Effects of Bilateral Tax Treaties on U.S. FDI Activity

39 Pages Posted: 30 Sep 2000 Last revised: 19 Oct 2010

See all articles by Bruce A. Blonigen

Bruce A. Blonigen

University of Oregon - Department of Economics; National Bureau of Economic Research (NBER)

Ronald B. Davies

University of Oregon - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2000

Abstract

The effects of bilateral tax treaties on FDI activity have been unexplored, despite significant ongoing activities by countries to negotiate and ratify these treaties. This paper estimates the impact of bilateral tax treaties using both U.S. inbound and outbound FDI over the period 1966-1992. Our estimates suggest a statistically significant average annual increase of FDI activity for each additional year of a treaty which ranges from 2% to 8%, depending on the FDI activity measure and empirical framework we employ. Examination for nonlinear effects of treaty age on FDI activity suggests that while treaties have an immediate impact on FDI flows, there is a substantial lag before treaty adoption positively affects FDI stocks and affiliate sales. Finally, our results suggest that bilateral tax treaties have an effect on investment outside of the withholding tax rates they alter, which may include the commitment and risk reduction effects of these treaties.

Suggested Citation

Blonigen, Bruce A. and Davies, Ronald B., The Effects of Bilateral Tax Treaties on U.S. FDI Activity (October 2000). NBER Working Paper No. w7929. Available at SSRN: https://ssrn.com/abstract=244060

Bruce A. Blonigen (Contact Author)

University of Oregon - Department of Economics ( email )

1285 University of Oregon
Eugene, OR 97403
United States
541-346-4680 (Phone)
541-346-1243 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ronald B. Davies

University of Oregon - Department of Economics ( email )

1285 University of Oregon
Eugene, OR 97403
United States
(541) 346-4671 (Phone)

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