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Improving Reputation BIT by BIT: Bilateral Investment Treaties and Foreign Accountability

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  • Chia-yi Lee
  • Noel P. Johnston

Abstract

The literature on foreign direct investment (FDI) has paid an increasing interest to international institutions such as bilateral investment treaties (BITs), but whether BITs help attract FDI is an unsettled question. Building on the existing literature, this article argues that BITs can change investors’ perceptions and the corresponding investment they make because signing BITs signals the involvement of another powerful country that is able to compel the host government to comply. This implies that the effect of BITs is not constant across signatory countries: BITs are more effective when they are signed with rich and influential countries. Using monadic and dyadic FDI data, this article finds that BITs signed with powerful countries (defined as the top six largest economies) lead to an increase in FDI inflows (both from these signatory countries and from other countries). BITs signed with other countries, despite in a larger quantity, have little influence on FDI inflows.

Suggested Citation

  • Chia-yi Lee & Noel P. Johnston, 2016. "Improving Reputation BIT by BIT: Bilateral Investment Treaties and Foreign Accountability," International Interactions, Taylor & Francis Journals, vol. 42(3), pages 429-451, May.
    • Handle: RePEc:taf:ginixx:v:42:y:2016:i:3:p:429-451
    DOI: 10.1080/03050629.2016.1128429
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    References listed on IDEAS

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    1. Lauge N. Skovgaard Poulsen & Emma Aisbett, 2011. "When the Claim Hits: Bilateral Investment Treaties and Bounded Rational Learning," Crawford School Research Papers 1105, Crawford School of Public Policy, The Australian National University.
    2. Jennifer Tobin & Susan Rose-Ackerman, 2003. "Foreign Direct Investment and the Business Environment in Developing Countries: the Impact of Bilateral Investment Treaties," William Davidson Institute Working Papers Series 587, William Davidson Institute at the University of Michigan.
    3. Michael Tomz, 2007. "The Puzzle of Cooperation in International Debt, from Reputation and International Cooperation: Sovereign Debt across Three Centuries," Introductory Chapters, in: Reputation and International Cooperation: Sovereign Debt across Three Centuries, Princeton University Press.
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    Cited by:

    1. Edmund J. Malesky & Helen V. Milner, 2021. "Fostering global value chains through international agreements: Evidence from Vietnam," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 443-482, November.
    2. Josef C. Brada & Zdenek Drabek & Ichiro Iwasaki, 2021. "Does Investor Protection Increase Foreign Direct Investment? A Meta‐Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 35(1), pages 34-70, February.
    3. Nathan M. Jensen & Noel P. Johnston & Chia-yi Lee & Hadi Sahin, 2020. "Crisis and contract breach: The domestic and international determinants of expropriation," The Review of International Organizations, Springer, vol. 15(4), pages 869-898, October.

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