The Impact of BITs and DTTs on FDI Inflow and Outflow: Evidence from China

Abstract

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.