Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/4227
Authors: 
Busse, Matthias
Königer, Jens
Nunnenkamp, Peter
Year of Publication: 
2008
Series/Report no.: 
Kiel Working Paper 1403
Abstract: 
Policymakers in developing countries have increasingly pinned their hopes on bilateral investment treaties (BITs) in order to improve their chances in the worldwide competition for foreign direct investment (FDI). However, the effectiveness of BITs in inducing higher FDI inflows is still open to debate. It is in several ways that we attempt to clarify the inconclusive empirical findings of earlier studies. We cover a much larger sample of host and source countries by drawing on an extensive dataset on bilateral FDI flows. Furthermore, we account for unilateral FDI liberalization, in order not to overestimate the effect of BITs, as well as for the potential endogeneity of BITs. Employing a gravity-type model and various model specifications, including an instrumental variable approach, we find that BITs do promote FDI flows to developing countries. BITs may even substitute for weak domestic institutions, though not for unilateral capital account liberalization.
Subjects: 
Multinational Corporations
Bilateral Investment Treaties
FDI
JEL: 
F21
F23
C33
Document Type: 
Working Paper

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