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Int Econ Econ Policy (2013) 10:247275
DOI 10.1007/s10368-012-0207-6
ORIGINAL PAPER
Axel Berger & Matthias Busse & Peter Nunnenkamp &
Martin Roy
Published online: 26 April 2012 # Springer-Verlag 2012
Abstract The previous literature provides a highly ambiguous picture on the impact of trade and investment agreements on FDI. Most empirical studies ignore the actual content of BITs and RTAs, treating them as black boxes, despite the diversity of investment provisions constituting the essence of these agreements. We overcome this serious limitation by analyzing the impact of modalities on the admission of FDI and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI flows between 1978 and 2004. We find that FDI reacts positively to RTAs only if they offer liberal admission rules. Dispute settlement provisions play a minor role. While RTAs without strong investment provisions may even discourage FDI, the reactions to BITs are less discriminate with foreign investors responding favourably to the mere existence of BITs.
Keywords Foreign direct investment . Bilateral investment treaties . Regional trade agreements . Admission rules . Investor-state dispute settlement
JEL Classification F21 . F23 . K33
Acknowledgements We are most grateful to Jayson Webb Yackee for sharing his coding of ISDS in BITs with us. We also thanks two anonymous reviewers for constructive critism and helpful suggestions.
A. Berger
German Development Institute, Bonn, Germany e-mail: [email protected]
M. Busse
Ruhr-University of Bochum, Bochum, Germany e-mail: [email protected]
P. Nunnenkamp (*)
Kiel Institute for the World Economy, Kiel, Germany e-mail: [email protected]
M. Roy
Secretariat of the World Trade Organization, Geneva, Switzerland e-mail: [email protected]
Do trade and investment agreements lead to more FDI? Accounting for key provisions inside the black box
248 A. Berger et al.
1 Introduction
International investment treaties have proliferated in recent years. The number of bilateral investment treaties (BITs) is continuing to rise, despite having reached already impressive numbers. At the end of 2010, a total of 2,870 BITs had been concluded (UNCTAD 2011: 100). Another salient trend is the increase in numbers of regional trade agreements (RTAs): 474 RTAs had been notified to the World Trade Organization (WTO) as of July 2010.1 What is less well known is that the proliferation of RTAs has taken place jointly with a trend towards a transformation of...