The Impact on Foreign Direct Investment of BITs

Abstract

AbstractThis chapter examines whether the conclusion of BITs does indeed contribute to an increase in FDI. Time-series data analysis based on bilateral FDI flows between the BIT signatory countries shows that the influence of BITs on FDI is weak, especially in redirecting the share of FDI flowing from or to BIT signatory countries. In other words, following the signing of a BIT, it is more likely than not that the host country will marginally increase its share in the outward FDI of the home country; the same applies to the share of the home country in the FDI inflows of the host country. The effect, however, is usually small. In the cross-country comparison of FDI determinants, the overall conclusion is that BITs appear to play a minor and secondary role in influencing FDI flows.