Effect Of Bilateral Investment Treaties Research Articles

The (Political) Economics of Bilateral Investment Treaties—The Unique Trajectory of Brazil

Brazil, after signing several traditional Bilateral Investment Treaties without ratifying them, recently shifted towards a different type of bilateral investment agreement, i.e., Investment Cooperation and Facilitation Agreements. Two claims have been made in the literature regarding the transition from traditional Bilateral Investment Treaties to Investment Cooperation and Facilitation Agreements—Claim #1: The non-ratification of the traditional BITs has not harmed Foreign Direct Investment into Brazil, a claim which puts into question the purpose of Bilateral Investment Treaties. Claim #2: While Investment Cooperation and Facilitation Agreements avoid some of the problems of traditional Bilateral Investment Treaties, on balance they are less effective than traditional Bilateral Investment Treaties would have been. We examine the two claims from an empirical economic point of view. We build on the literature about Brazil’s position vis-à-vis Bilateral Investment Treaties, which must be viewed by an amalgamation of (i) a historical legacy; (ii) domestic initiatives, and (iii) a particular U-turn in the political debate. Using empirical evidence on Foreign Direct Investment effects of Bilateral Investment Treaties, the following conclusions emerge: With regard to claim #1, empirical evidence in general as well as specific to Brazil suggests that Brazil has forgone Foreign Direct Investment by not ratifying traditional Bilateral Investment Treaties. Concerning claim #2, while Investment Cooperation and Facilitation Agreements include alternative dispute settlement mechanisms, which aim at a better compliance of states with the Investment Cooperation and Facilitation Agreements’ rules, rather than the compensation of foreign investors, the lower stringency of the State–State dispute settlement mechanism compared to Investor–State dispute settlement mechanism makes Investment Cooperation and Facilitation Agreements less effective. Yet, this weakening effect must be weighed against the effects on Foreign Direct Investment from innovative clauses in Investment Cooperation and Facilitation Agreements, which are absent in many traditional Bilateral Investment Treaties.

The Effects of Investment Treaties and Trade Agreements on FDI: The Case of Serbia

ABSTRACT This study explores the effects of Bilateral Investment Treaties (BIT) and Regional Trade Agreements (RTA) on foreign direct investment (FDI) inflows into Serbia, utilizing panel data for 2010–2021. The results indicate that both BIT and RTA independently exert positive impacts on Serbia’s inward FDI. Also, the interaction effects between BIT and RTA dummies and export/import variables on inward FDI are positive. This suggests that the implementation of BITs and/or RTAs fosters a complementary relationship between trade and FDI in Serbia as the predominant type of FDIs from partner states with which Serbia shares BITs and/or RTAs is vertical and export-platform rather than horizontal.

Bilateral investment treaties and portfolio investment

We analyze the effect of bilateral investment treaties (BITs) on bilateral foreign portfolio investment in equity and debt securities. We find that expropriation risk and the level of a BIT’s investor protection are complementary. Applying a Poisson Pseudo-Maximum-Likelihood model to a panel of 60 home and 39 host countries from 2002 to 2017, we find that host countries receive 40% more bilateral equity investment when they protect foreign investors with a BIT. This effect almost doubles when investment protection of BITs is strong, and the political risk of the host country is high.

The international service trade effects of bilateral investment treaties

AbstractThis paper examines the impact of the bilateral investment treaties (BITs) on a large dataset of service trade using recently developed Poisson pseudo‐maximum likelihood (PPML) estimator regression models with multiple high‐dimensional fixed effects to estimate the structural gravity equations. The model in this paper theoretically demonstrates that BITs reduce service trade from foreign direct investment (FDI) source countries by decreasing the additional variable costs of operating a foreign affiliate. This paper also empirically confirms that BITs decrease service exports from developed to developing economies through analysing a comprehensive WTO‐OECD Balanced Trade in Services Data from 1995 to 2006.

The Effect of Bilateral Investment Treaties (BITs) on the extensive and intensive margins of exports

This paper investigates the effect of BITs on the extensive and intensive product margins of exports, utilizing ordinary least squares (OLS) and Poisson pseudo-maximum-likelihood (PPML) estimator with fixed effects approaches to estimate the gravity equations. The model in this paper theoretically demonstrates that investment liberalization increases the extensive margin by lowering the variable costs of selling abroad, but decreases the intensive margin by lowering both the fixed investment costs and the variable costs. Using a detailed dataset of 210 countries/regions from 1988 to 2006, this paper provides empirical evidence that BITs promote exports. This paper also empirically supports the theoretical propositions that BITs increase the extensive margin of exports from developed countries while decreasing the intensive margin of exports.

A BIT of help? The divergent effect of bilateral investment treaties on women’s rights

What effect do bilateral investment treaties (BITs) have on women’s rights? We argue that BITs have divergent effects on women’s rights dependent on the type of women’s rights examined. We posit that BITs have a negative effect on women’s economic rights in host states because of an initial “locking in” effect, whereby states seek to become more attractive to potential bilateral partners by decreasing the quality of conditions prior to signing a BIT. Host states then become reluctant to prosecute foreign investors due to the threat of legal arbitration, which further enables foreign investors to engage in women’s rights violations. In response to the possibility of unrest generated by the BITs, host states then seek to improve women’s political rights, compensating women for the decreasing quality of economic rights in turn. In testing these assertions, our expectations are broadly and consistently confirmed.

Bilateral Investment Treaty and Foreign Direct Investment in India

India has one of the largest Bilateral Investment Treaty (BIT) networks with other counties around the world. The BITs is to promote foreign investment by increasing investor confidence, empowering individual private parties to take international arbitral proceedings against the threat of appropriation by the government of the host country. This paper analyses the effect of BITs on FDI inflows in India using panel data for 76 countries for the time period 2000-2016 applying a dynamic panel generalised method of moments instrumental variable estimation method. The differenced GMM and system GMM estimates show a significant negative effect of bilateral investment treaties on the FDI inflows in India. While the lagged FDI has a significant positive effect, the financial openness of the source nations is reducing FDI inflows to India. The POLCON index shows that the countries with lesser political constraints have positive FDI outflow towards India. As opposed to domestic variables, the Chinn-Ito and POLCON indices have a greater share of change in FDI inflows to India. It seems that the BITs is not efficient enough to create investor confidence to invest in India.

Economic Policy Uncertainty, Bilateral Investment Treaties, and Chinese Outward Foreign Direct Investment

This paper examines the effect of bilateral investment treaties (BITs) in promoting Chinese outward foreign direct investment (COFDI) in the presence of rising economic policy uncertainty in China's partner countries. We postulate that the signing of BITs should help stimulate COFDI because the treaties send a credible signal to foreign investors about the host country's intent to protect Chinese investment, and make it more difficult for the host country to violate its treaty obligations. BITs that contain rigorous investment protection and liberalization provisions, in particular, should be more likely to encourage COFDI as they directly influence Chinese investors' expectations about the stability, predictability, and security of the host market. However, while BITs generally promote COFDI, host country economic policy uncertainty may also limit their effectiveness. This is because uncertainty tends to undermine investor confidence, trigger capital flows from high- to low-risk countries, and dampen commercial activities. Poisson pseudo-maximum likelihood (PPML) estimation models of the determinants of COFDI to 188 countries between 2003 and 2017 lend substantial support to our conjectures.

Bilateral Investment Treaty and Overseas M&A of Chinese Companies：Evidence from a Quasi-natural Experiment

As an important legal document signed between two countries to promote and protect investment, bilateral investment treaties play an important role in bilateral international investment. This paper intends to answer the following questions: What is the impact of bilateral investment treaties on Chinese companies’ overseas mergers and acquisitions（M&A）? What is the impact mechanism? How should Chinese companies take advantage of the effect of bilateral investment treaties on overseas M&A, so as to expand the scale and scope of overseas M&A while promoting the success of M&A?Based on the progressive difference-in-difference model, this paper delves into the theoretical mechanism and impact of bilateral investment treaties on Chinese companies’ overseas M&A by using bilateral investment treaties as a quasi-natural experiment with the country panel data of 140 countries from 2004 to 2018. It comes to the following conclusions: Firstly, compared with countries that have not signed bilateral investment treaties, bilateral investment treaties have a significant positive effect on Chinese companies’ willingness to acquire overseas and successful M&A. Secondly, in terms of dynamic effects, bilateral investment treaties have a long-term effect on the promotion of Chinese companies’ overseas M&A, and their volatility has increased. Thirdly, the promotion effect of bilateral investment treaties is significantly heterogeneous. The promotion effect of bilateral investment treaties is more significant in Asia and Africa, stronger in high-quality countries and developed countries, and stronger in non-state-owned companies. Fourthly, the expansibility test shows that the quality of the text of bilateral investment treaties have a significant promoting effect on China’s overseas M&A. Fifthly, through the decomposition and quantification of the specific provisions of investment treaties, “Definition and Scope of Investment”“Fair and Equitable Treatment” and “Most Favored Nation Treatment” are the key provisions that affect the promotion of China’s overseas M&A in bilateral investment treaties. This paper enriches the research theory in the field of bilateral investment treaties and overseas M&A relations, provides policy revelations for Chinese companies’ overseas M&A and the new round of bilateral investment treaty practices, and contributes Chinese wisdom to global economic governance.In short, this paper contributes to the existing research in the following three perspectives: Firstly, it specifically examines the impact of bilateral investment treaties on the number of Chinese companies’ M&A cases and successful M&A cases in a more in-depth way. Secondly, it uses bilateral investment treaties as a quasi-natural experiment, and conducts an empirical research based on the progressive difference-in-difference model. It also explores the impact of the text quality of investment treaties, and examines the internal mechanism of bilateral investment treaties from the dimensions of investment definition and scope, fair and equitable treatment, national treatment, most-favored-nation treatment, expropriation compensation, umbrellas, and investment dispute settlement based on the specific terms of investment treaties. Lastly, it lays an important empirical foundation for deepening bilateral investment treaties and promoting overseas M&A by Chinese companies, as well as for building a scientific and reasonable bilateral investment treaty system and promoting the formation of a new pattern of comprehensive opening.

INVESTMENT LIBERALIZATION, CREDIT CONSTRAINTS, AND INTERNATIONAL TRADE

This paper investigates the effect of bilateral investment treaties (BITs) on the extensive and intensive product margins of exports in sectors with different credit constraints. The model in this paper demonstrates that such investment liberalization increases the extensive product margin by lowering the variable costs of selling abroad, while it decreases the intensive product margin by lowering both the fixed investment costs and the variable costs. Moreover, the effects of investment liberalization are stronger in financially more vulnerable sectors. Using a detailed dataset of 190 countries and 27 manufacturing sectors from 1988 to 2006, this paper furnishes robust evidence that BITs increase the extensive margin of exports from developed countries and decrease the intensive margin of exports. It further shows that BITs decrease the intensive margin of exports from developed countries more in the sectors that are more dependent on external finance. Similarly, the intensive margin of exports from developed countries in low tangibility sectors falls by 11.81% because of BITs, while the intensive margin in high tangibility sectors is quite stable with BITs.

The international trade effects of bilateral investment treaties

We study the international trade effects of bilateral investment treaties (BITs) and compare them to those of regional trade agreements (RTAs). We find that a BIT increases bilateral international trade flows by similar amounts as an RTA if the RTA contains an investment chapter. BITs have larger international trade effects than RTAs without an investment chapter. Results are robust to controlling for the effects of unilateral investment laws. They imply that evaluations of trade and investment agreements should also consider investment regulation.

International treaties and foreign direct investment: an empirical analysis of effects of bilateral investment treaties on South Korea's FDI

South Korea has been proactive in concluding bilateral investment treaties to promote both inward and outward investment. While South Korea had concluded 95 BITs as of 2017, there have been very few empirical works on whether BITs have positive effects on South Korea’s FDI flows. This paper aims to empirically examine the effects of BITs between South Korea and treaty partners on South Korea’s outward FDI into them. The results show that BITs—either signed or entered in force—between South Korea and host countries have positive and statistically significant effects on Korea’s direct investment into these countries. Moreover, it turns out that South Korea FDI flows into developing countries are positively affected by BITs which is statistically significant while those into developed countries are not. This paper positively contributes to existing literature by deepening understanding of the effects of international investment treaties.

On the optimal size of bilateral investment treaty network in foreign direct investment flows

PurposeThe aim of this paper first is to go beyond the static effects of bilateral investment treaties (BITs) and empirically estimate the marginal effects of the stock of BITs on foreign direct investment flows.Design/methodology/approachThese statistical models use a gravity equation.FindingsThis paper finds that BITs is subject to diminishing returns measured in terms of FDI flows. Diminishing returns are more pronounced among country-pairs that have not signed BITs but have their own BIT network than among country-pairs with their own BITs.Research limitations/implicationsThe subsidiary finding is that a measure of a country’s BIT network characteristic, capturing conditions favorable for a mix of horizontally and vertically integrated activities, may be the limiting force underlying the diminishing returns of the stock of BITs.Originality/valueFor a given country’s BIT network, a multinational enterprise finds more value in investing where a bilateral treaty is in place. This suggests either stronger property-rights protection or greater latitude to use the host country as an export platform.

Heterogeneous effects of bilateral investment treaties

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.

Can I stay a BIT longer? The effect of bilateral investment treaties on political survival

Bilateral Investment Treaties (BITs) have proliferated throughout the international system. While ostensibly commercial in purpose, do BITs have domestic political ramifications? I argue that BITs affect a leader’s tenure through their effect on the property rights environment in developing countries. BITs, by segmenting a country’s property rights environment for foreign and domestic firms, reduce the incentive for foreign firms to lobby for property rights protections in the host country thus leading to a stagnating domestic property rights environment. In autocracies, a stagnating domestic property rights regime benefits domestic business elites who can continue to stymie small and medium enterprises (SMEs). The political benefits of BITs, however, decrease as a country becomes more democratic. Using a dataset of developing country leaders over the period 1965-2011, I find support for my hypothesis that BITs are associated with a decreased hazard of losing office and that the effect diminishes with higher levels of democracy. My results highlight the consequences of the legalization of global investment on the domestic political economy.

Bilateral Investment Treaties in Hungary

Bilateral investment treaties (BITs) have been used as a powerful asset in attracting foreign capital for the benefit of the host state, while ensuring a favourable and predictable investment environment for investors venturing abroad. The more than 2700 BITs currently in force – comprising 56 BITs to which Hungary is a signatory – have had a significant impact on cross-border business activities all around the world. The beneficial effect of bilateral investment treaties has been especially palpable in transition economies within the Eastern bloc in pursuit of establishing international relations with Western countries and kick-starting economic growth. The present article aims at granting a concise overview of bilateral investment treaties in Hungary, the leading newcomer in the system of BITs within its region, with a special regard to the historical background, structure and future fate of such agreements.

Foreign Direct Investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties

The effects of Bilateral Investment Treaties on FDI and the domestic business environment remain unexplored despite the proliferation of treaties over the past several years. This paper explores the objectives and possible consequences of BITs. Specifically, it asks whether BITs stimulate FDI flows to host countries, and if this relationship is conditional on the level of political risk in a country. We find a very weak relationship between BITs and FDI. Further, we find that rather than encouraging greater FDI in riskier environments, BITs only have a positive effect on FDI flows in countries with an already stable business environment. Overall, BITs seem to have little positive effect either on foreign investment or on outside investors' perception of the investment environment in low- and middle-income countries.