Do Bilateral Investment Treaties Attract Foreign Direct Investment? Only a Bit ... and They Could Bite
Touted as an important commitment device that attracts foreign investors, the number of bilateral investment treaties (BITs) ratified by developing countries has grown dramatically. The author tests empirically whether BITs have actually had an imp...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2003/08/2507711/bilateral-investment-treaties-attract-foreign-direct-investment-only-bit-bite http://hdl.handle.net/10986/18118 |
| Summary: | Touted as an important commitment device
that attracts foreign investors, the number of bilateral
investment treaties (BITs) ratified by developing countries
has grown dramatically. The author tests empirically whether
BITs have actually had an important role in increasing the
foreign direct investment (FDI) flows to signatory
countries. While half of OECD FDI into developing countries
by 2000 was covered by a BIT, this increase is accounted for
by additional country pairs entering into agreements rather
than signatory hosts gaining significant additional FDI. The
results also indicate that such treaties act more as
complements than as substitutes for good institutional
quality and local property rights, the rationale often cited
by developing countries for ratifying BITs. The relevance of
these findings is heightened not only by the proliferation
of such treaties, but by recent high profile legal cases.
These cases show that the rights given to foreign investors
may not only exceed those enjoyed by domestic investors, but
expose policymakers to potentially large-scale liabilities
and curtail the feasibility of different reform options.
Formalizing relationships and protecting against dynamic
inconsistency problems are still important, but the results
should caution policymakers to look closely at the terms of agreements. |
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