1887

WTO Working Papers

WTO working papers usually represent research in progress. Such research may be conducted in the preparation of WTO Secretariat reports, studies or other material for WTO members. The papers are circulated for comment because the WTO considers critical review of professional research to be extremely important.

English

Do Trade and Investment Agreements Lead to More FDI?

Accounting for Key Provisions Inside the Black Box

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.

English

Keywords: investor-state dispute settlement, bilateral investment treaties, foreign direct investment, admission rules, regional trade agreements
JEL: F21: International Economics / International Factor Movements and International Business / International Investment; Long-Term Capital Movements; F23: International Economics / International Factor Movements and International Business / Multinational Firms; International Business; K33: Law and Economics / Other Substantive Areas of Law / International Law
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