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The Importance of Defining Property Rights in Free Trade Agreements on Foreign Direct Investment

Author

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  • Martínez Trigueros Lorenza
  • Romero Hidalgo Roberto

Abstract

This paper analyzes the negative effect of a weak property rights enforcement on Foreign Direct Investment (FDI), as well as the role of bilateral agreements as an alternative to counteract this effect. This positive contribution takes place not only by its effect on commercial flows but also because these agreements can improve the property rights enforcement. In this context, we propose the hypothesis that multilateral free trade agreements have a greater impact on the flow of FDI to countries with a poor enforcement of property rights. When these agreements include a chapter on dispute settlements with an arbitrage panel, they help to mitigate some deficiencies of the national institutions by allowing some conflicts to be solved in a panel of international members. The empirical results using a panel of 38 countries from 1980 to 2001 and including 203 agreements corroborate the proposed theory.

Suggested Citation

  • Martínez Trigueros Lorenza & Romero Hidalgo Roberto, 2004. "The Importance of Defining Property Rights in Free Trade Agreements on Foreign Direct Investment," Working Papers 2004-02, Banco de México.
    • Handle: RePEc:bdm:wpaper:2004-02
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    File URL: https://www.banxico.org.mx/publicaciones-y-prensa/documentos-de-investigacion-del-banco-de-mexico/%7B45D82583-8A35-DC03-2619-FAD8B09E0ABD%7D.pdf
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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