Foreign Direct Investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties

52 Pages Posted: 11 May 2005  

Susan Rose-Ackerman

Yale Law School

Jennifer Tobin

Georgetown University; The Brookings Institution; Nuffield College

Date Written: May 2, 2005

Abstract

The effects of Bilateral Investment Treaties on FDI and the domestic business environment remain unexplored despite the proliferation of treaties over the past several years. This paper explores the objectives and possible consequences of BITs. Specifically, it asks whether BITs stimulate FDI flows to host countries, and if this relationship is conditional on the level of political risk in a country. We find a very weak relationship between BITs and FDI. Further, we find that rather than encouraging greater FDI in riskier environments, BITs only have a positive effect on FDI flows in countries with an already stable business environment. Overall, BITs seem to have little positive effect either on foreign investment or on outside investors' perception of the investment environment in low- and middle-income countries.

Suggested Citation

Rose-Ackerman, Susan and Tobin, Jennifer, Foreign Direct Investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties (May 2, 2005). Yale Law & Economics Research Paper No. 293. Available at SSRN: https://ssrn.com/abstract=557121 or http://dx.doi.org/10.2139/ssrn.557121

Susan Rose-Ackerman (Contact Author)

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

Jennifer Tobin

Georgetown University ( email )

3600 N Street, NW Suite 200
Washington, DC 20057
United States

The Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States

Nuffield College ( email )

New Road
Oxford, OX1 1NF
United Kingdom

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