Heterogeneous effects of bilateral investment treaties

Rod Falvey, Neil Foster-McGregor

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Abstract

Bilateral investment treaties (BITs) are an increasingly used policy instrument to encourage FDI inflows, particularly inflows into developing countries. In this paper we estimate a gravity model of FDI flows from a sample of OECD countries to a broader sample of developing economies, examining the impact of BITs on these flows. BITs are signed between highly heterogeneous country-pairs, with important differences found in terms of the institutional and economic distance between BIT signatories. These differences may help explain the mixed results on the effects of BITs on FDI flows in the existing literature, with our exploration of non-linearities in this relationship suggesting that the effects of BITs are increasing in the difference in GDP and GDP per capita between source and host. BITs appear to have no impact upon FDI flows for country-pairs that are too dissimilar in terms of the strength of their political institutions.

Original languageEnglish
Pages (from-to)631-656
Number of pages26
JournalReview of World Economics
Volume153
Issue number4
DOIs
Publication statusPublished - 1 Nov 2017

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Bilateral investment treaties
Developing countries
Developing economies
GDP per capita
Economics
OECD countries
Gravity model
Policy instruments
Political institutions
Nonlinearity

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Falvey, Rod ; Foster-McGregor, Neil. / Heterogeneous effects of bilateral investment treaties. In: Review of World Economics. 2017 ; Vol. 153, No. 4. pp. 631-656.
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Heterogeneous effects of bilateral investment treaties. / Falvey, Rod; Foster-McGregor, Neil.

In: Review of World Economics, Vol. 153, No. 4, 01.11.2017, p. 631-656.

Research output: Contribution to journalArticleResearchpeer-review

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