Bilateral investment treaties (BITs) have become increasingly popular as a means of encouraging foreign direct investment (FDI) from developed to developing countries. We adopt a difference-in-difference analysis to deal with the problem of self-selection when estimating the effects of BITs on FDI flows from a sample of OECD countries to a broader sample of lesser developed countries. Our results indicate that forming a BIT with a developed country significantly increases FDI inflows to developing countries. We further find that the development of new FDI flows and the reinvigoration of deteriorating FDI relationships accounts for the majority of the increase in FDI flows due to BIT formation.
- o24 - "Development Planning and Policy: Trade Policy; Factor Movement; Foreign Exchange Policy"
- o16 - "Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance"
- f21 - "International Investment; Long-term Capital Movements"
- bilateral investment treaties
- endogenous treatment effects
- foreign direct investment
- bilateral agreement
- developing world
- TRADE AGREEMENTS