The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows

This paper examines the impact of both China's bilateral investment treaties (BITs) and double tax treaties (DTTs) simultaneously on China's bilateral Foreign Direct Investment (FDI) inflows and outflows. Using China bilateral FDI flow data from 1985 to 2010, we find that the cumulative number of bilateral investment treaties (BITs) China signed has a positive (though not always statistically significant) but minor impact on both China's FDI inflows and outflows. The effect of a dummy BIT using dyadic data is always significant and positive for China's FDI inflows, while negative but not always significant for China's FDI outflows. We also find evidence that the cumulative number of double tax treaties (DTTs) tends to promote China's FDI inflows and outflows in most equations with weighted cumulative BITs. However, tax treaty dummies do not reveal any robust effect on FDI flow. Generally, BITs and DTTs are more inclined to affect China's FDI inflows than to affect China's FDI outflows.

PurposeThis study aims to examine the role of Bilateral Investment Treaties (BITs) in attracting higher foreign direct investment (FDI) inflows into the major emerging economies namely Brazil, Russia, India, China and South Africa (BRICS) from the source developed, developing and other emerging economies over a period of 18 years from 2001 to 2018.Design/methodology/approachTo estimate the results, panel data regression on a gravity-knowledge capital model has been used. To account for the problem of endogeneity we have used the two-step difference Generalised Method of Moments estimator proposed by Arellano and Bond (1991).FindingsWe find that contradictory to theory and expectations, BITs result in a fall in FDI inflows in BRICS economies. BITs ratified by BRICS economies are not able to provide a sound and secure investment environment to foreign investors, thereby discouraging FDI in these economies.Originality/valueTo the best of the authors’ knowledge, this study is the first to examine the impact of BITs on FDI inflows into the emerging BRICS economies. Further, the impact of BITs on FDI flows among developed nations, i.e. north-north FDI and from developed to developing countries, i.e. north-south FDI has already been studied by many researchers. But so far, no study has examined this impact on FDI among developing and emerging economies (south-south FDI), despite an increase in FDI flows among these economies. Therefore, this study seeks to overcome the limitations of previous studies and tries to find out the impact of BITs on FDI inflows in BRICS economies not only from source developed but also from source developing and other emerging economies.

This chapter empirically examines the effect of bilateral investment treaties (BITs) and double taxation treaties (DTTs) on foreign direct investment. This chapter is structured as follows: firstly it describes bilateral investment and tax treaties, and reviews existing empirical studies on both BITs and DTTs. It then describes the methodology and data, and discusses the estimation technique and results, and conclusions. The chapter shows that transition countries that have BITs with developed countries receive more FDI inflows from these countries. It also provides evidence that BITs function to some extent as substitutes for institutional quality. There was no robust effect of tax treaties on FDI.

Nearly all developing countries actively seek capital and technology from the advanced countries. Although private direct foreign investment (mainly in the form of multinational enterprise) is viewed with ambivalence by many developing countries, it is nonetheless true that direct investment remains a substantial source of capital and is sometimes the only source of specific technologies. Indeed, given the slow growth in official external assistance, developing countries are becoming more, not less, dependent on direct foreign investment. While disbursements of official development assistance by the OECD countries rose 43% from 1961 through 1970, direct investment flows rose almost 90% over the same period. In the later year, the flow of direct investment was more than two-fifths of all official assistance, $3.2 billion compared to $7.8 billion.1 Furthermore, the United States and other major capital exporting countries would prefer, for economic as well as ideological reasons, to channel more of their capital outflows to developing countries through private investment. It is highly probable, therefore, that developing countries will continue to rely on direct foreign investment in the foreseeable future to carry out their development programs. It is against this background that the present study seeks to identify the empirical determinants of direct foreign-investment flows in the manufacturing sectors of developing countries. Our purpose is to select from the many economic, social, and political features of a developing country those features that are critical to making that country attractive or unattractive to private foreign investors. Available empirical studies are limited

Since the mid-1980s, most countries, especially the developing, have become more open to foreign direct investment (FDI) aiming to benefit from its fiscal development contributions, as countries with a high level of investment systematically achieve higher levels of development. Accordingly, bilateral investment treaties (BITs) guarantee certain standards of treatment. However, there are various concerns related to the effectiveness of BITs at large and of their investment protection standards especially to promote inflows of FDI, as there are opinions indicating that many multinational enterprises do not appear to take BITs into account when determining their investment plan abroad. This paper purports at first to examine the most important investment protection standards provided by BITs, in order to connect these standards with the main host country determinants for attracting FDI. In addition, it explores the possible impact of BITs on FDI inflows, since they are the key instrument in the strategies of most countries to attract foreign investors. The present paper in order to assess the importance of BITs examines several studies that explore the impact of BITs on FDI inflows, concluding that higher number of BITs raise the FDI.

Purpose – Given the inconclusive evidence in the literature on the impact of Bilateral Investment Treaties (BITs) on Foreign Direct Investment (FDI) flows, as well as dearth of literature on this subject matter as regards West Africa and the European Union (EU), the purpose of this paper is to investigate the extent to which BITs and preferential trade and investment agreements (PTIAs) triggered foreign investment flows particularly between the Economic Community of West African States (ECOWAS) countries and the EU.

After a run of adverse investor-state dispute settlements, India has recently denounced all its erstwhile investment treaties. New investment treaties need to be negotiated on the basis of a new Model Treaty that privilege state rights over investor rights. We study the impact of bilateral investment treaties on foreign direct investment (FDI) inflows into India before the denunciation with the intent of inferring the consequences of changing the system. Our work captures the effects of international investment agreements on FDI inflows specifically into India. We construct an empirical model drawing on the Gravity Model, and estimate parameters using generalised method of moments. The results show that while the individual signing of bilateral investment treaties does not influence the inflow of FDI, the effect of the cumulative bilateral investment treaties signed is statistically very significant—suggesting that the spill over effect of signing a series of bilateral investment treaties are important, signalling a regime of overall protection to investors. The importance of institutional variables in influencing FDI tells us that overall participation in a system governed by international investor agreements influenced the inflow of FDI positively and therefore recent policy changes should be viewed with caution. JEL Codes: F21, F23, F550, F63, K33, O19, C22, C29

Developing countries often consider foreign direct investment (FDI) as an engine to boost economic growth. Therefore they try to promote investment inflow by various means. One approach is to offer investment guarantees to foreign investors using Bilateral Investment Treaties (BITs). Following international best practice, India has signed a number of BITs to stimulate inflow of FDI. Till date, the Government of India has signed BITs with 83 countries. These BITs were largely negotiated on the basis of the Indian Model BIT of 1993. There have been recent moves that point in the direction of India fundamentally altering the text of its BITs with countries, including calling off existing BITs and approving a new model BIT. However, concerns have been raised as to the possible pernicious impact of these changes on the inflow of FDI into India. This paper investigates whether the concern is warranted at all – by asking if BITs significantly impact the inflow of FDI. It is established that BIT is indeed a veritable boost to FDI inflow, and the estimated coefficient remains significant and robust across econometric specifications. Therefore, a note of caution is sounded for the rejigging exercise involving BITs that has been initiated by India.

This study investigates the impact of Bilateral Investment Treaties (BITs) on Foreign Direct Investment (FDI) inflows to Vietnam using a panel dataset of 36 partner countries from 2007 to 2019. Employing the Gravity Model, the analysis incorporates key determinants of FDI, including economic size, geographical distance, trade openness, macroeconomic stability, infrastructure, and institutional quality. The findings confirm that BITs play a significant role in attracting FDI, as they reduce investment risks and enhance investor confidence. The results also reveal that larger economies attract more FDI, while greater geographical distance deters investment. ASEAN membership and trade openness positively influence FDI, whereas inflation volatility and exchange rate fluctuations deter investment. Additionally, strong digital infrastructure and telecommunications contribute to greater FDI attractiveness. Among institutional factors, government effectiveness, the rule of law, and corruption control emerge as critical drivers of investor confidence. The study concludes that BITs are a useful tool to attract FDI, but their effectiveness is contingent upon complementary reforms and sound economic fundamentals. These findings offer practical implications for policymakers by emphasizing the importance of not only signing BITs but also improving domestic institutions and infrastructure to fully realize the benefits of international investment agreements.

PurposeThe purpose of this paper is to analyze the effect of the duration of free trade agreement (FTA) and bilateral investment treaty (BIT) on the foreign direct investment (FDI) flows between OECDs and different level of income countries such as upper- and lower-middle-income countries.Design/methodology/approachThe authors applied the gravity model by adding more variables of interest such as trade openness, export volume, dummy and cumulative variables of FTA and BIT to find out the proper determinants of FDI attraction. Through Hasuman test, the authors find the fixed model is appropriate methodology. Hence, the authors basically use the fixed models to find the effect of the duration of FTA and BIT on FDI flows between different groups of countries.FindingsThe main results of the study are briefly summarized briefly as follows. First, the effects of FTA dummy variables and its cumulative variables are greater than those of BIT dummy variables and cumulative variables. If an FTA signifies attracting FDI as well as bilateral trade, and contains an investment agreement provision in it is included in the FTA, it can be seen that the FTA is more effective way of attracting FDI than BIT because FTA is more comprehensive agreement dealing with not only investment issues but also non-investment ones. Second, the BIT effect on FDI is only meaningful when developed countries invest in developing countries. In other words, when a country decides to invest in a developing country with a relatively poor investment environment, whether to enter into a BIT will provide investors with investment stability to gage the investment climate of the host country. Third, the BIT cumulative year effect showed a positive and significant results on FDI inflow and outflow of all cases, unlike the BIT effect. While the fact that BIT cumulative effect has a relatively less positive effect than the BIT dummy effect, implying that BIT effect was evident as time elapsed after fermentation.Originality/valueThe main contribution of this study is that we consider the duration of FTA and BIT explicitly in the model. Previous related studies tried to find out the effects of FTA and BIT on FDI by simply applying dummy variables of them. In this paper, by applying both dummy variables and cumulative variables of FTA and BIT that capture the duration effect, we can deeply understand the effects of national agreements dealing with investment clauses on FDI more dynamically.

Do International Investment Agreements Attract Foreign Direct Investment into Developing Countries?

The Impact of Bilateral Investment Treaties and Double Taxation Treaties on Foreign Direct Investments

Evaluating the Impact of FTAs on FDI: A Text-Based Approach

The proliferation of North–South bilateral investment treaties (BITs), which provide investors with favorable treatment and legal protections, is one of the most remarkable trends of the contemporary global economy. Presumably, developing countries conclude these agreements in order to attract much-needed capital to their economies. Although the positive effect of BITs on foreign direct investment (FDI) inflows may seem straightforward, the findings produced by extant research are mixed. This article advances the study of the relationship between BITs and FDI in two manners. First, it draws attention to the often underappreciated distinction between signed and mutually-ratified treaties. It argues that only BITs in force function as a costly signal of pro-investment climate and a credible commitment to the protection of FDI. Second, it employs a comprehensive data set on American investment in developing countries to empirically evaluate the effect of BITs on FDI inflows. Employing a variety of model specifications and accounting for potential endogeneity, the findings indicate that BITs have the expected positive effect on FDI inflows, but only to the extent that they are in force.

The chapter examines the impact of Bilateral Investment Treaties (BITs) on certain performance indicators of manufacturing firms in India, focusing on the impact of foreign direct investment (FDI) and how that impact is influenced by BITs. The impact of BITs on FDI quality is looked at from four vantage points – firm-level export intensity, wage share in sales (to capture the employment generation impact), local materials usage and technology orientation. These four firm performance indicators are often deemed in literature to be where ‘good’ FDI has the most positive impact. Using panel data models, this chapter looks at the changes in these indicators over time for manufacturing firms in India, and more importantly tries to investigate the role of foreign ownership and BITs signing on these four FDI quality metrics.