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Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments?

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  • Chang Hoon Oh

    (Faculty of Business, Brock University)

  • Michele Fratianni

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

This paper finds that the stock of bilateral investment treaties (BIT) is subject to diminishing returns measured in terms of foreign direct investment flows. Diminishing returns are more pronounced among country-pairs that have not signed bilateral investment treaties but have their own BIT network than among country-pairs with their own bilateral investment treaties. For a given country’s BIT network, a multinational enterprise finds more value in investing where a bilateral treaty is in place. This may suggest either stronger property-rights protection or greater latitude to use the host country as an export platform. Our subsidiary finding is that an index of a country’s BIT network diversity appears to be a plausible explanation of the limiting force underlying the diminishing returns of the stock of BITs in a world where there is a mix between horizontally and vertically integrated multinational enterprises.

Suggested Citation

  • Chang Hoon Oh & Michele Fratianni, 2010. "Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments?," Working Papers 2010-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2010-04
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    More about this item

    Keywords

    bilateral investment treaty; foreign direct investment; gravity equation; network diversity;
    All these keywords.

    JEL classification:

    • 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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