Own Interest and Foreign Need: Are Bilateral Investment Treaty Programmes Similar to Aid Allocation?
Foreign Policy Analysis, Vol. 2, No. 3, 2006
48 Pages Posted: 29 Dec 2004 Last revised: 23 Feb 2009
Date Written: December 1, 2004
Bilateral investment treaties (BITs) have become the most important legal mechanism for the encouragement of foreign direct investment (FDI) in developing countries. Yet practically no systematic evidence exists on what motivates capital-exporting developed countries to sign BITs earlier with some developing countries than with others, if at all. The theoretical framework from the aid allocation literature suggests that developed countries pursue a mixture of own interest and foreign need. It also suggests differences between the big developed countries and a group of smaller ones known as like-minded countries. We find evidence that both economic and political interests determine the scheduling of BITs. However, with one exception, foreign need as measured by per capita income is also a factor. These results suggest that BIT programmes can be explained employing the same framework successfully applied to the allocation of aid. At the same time, own interest seems to be substantively more important than developing country need when it comes to BITs and the like-minded countries make no exception.
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