The Impact of Unilateral Bilateral Investment Treaties Terminations on FDI: Evidence from a Natural Experiment

53 Pages Posted: 1 Jun 2020

See all articles by Simon Hartmann

Simon Hartmann

Vienna University of Economics and Business

Rok Spruk

University of Ljubljana, School of Economics and Business; University of Ljubljana, School of Economics and Business

Date Written: May 2, 2020

Abstract

This paper attempts a new way of identifying the impact of Bilateral Investment Treaties (BITs) on foreign direct investments (FDI) by taking advantage of the random timing of 44 unilateral BIT terminations in India between 2013 and 2019. Using quarterly bilateral FDI data of 138 investor countries, our difference-in-differences (DD) estimates uncover a significant reduction in FDI inflows to India in response to BIT terminations in a range between 14 and 28 percent compared to countries without terminations. Further investigations reveal the sudden break with investor protection for new investments rather than a general negative signal as the major transmission channel. Moreover, we find that similar quality of investor legal institutions relative to India offsets the negative effect of BIT terminations.

Keywords: BIT terminations, Natural experiment, Difference-in-differences, Bilateral FDI, India

JEL Classification: F30, F63, K40, O10, O53

Suggested Citation

Hartmann, Simon and Spruk, Rok and Spruk, Rok, The Impact of Unilateral Bilateral Investment Treaties Terminations on FDI: Evidence from a Natural Experiment (May 2, 2020). Available at SSRN: https://ssrn.com/abstract=3591529 or http://dx.doi.org/10.2139/ssrn.3591529

Simon Hartmann (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Rok Spruk

University of Ljubljana, School of Economics and Business ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

HOME PAGE: http://sites.google.com/site/rokspruk

University of Ljubljana, School of Economics and Business ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

HOME PAGE: http://sites.google.com/site/rokspruk

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