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The Effect of Treaties on Foreign Direct InvestmentBilateral Investment Treaties, Double Taxation Treaties, and Investment Flows$
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Karl P. Sauvant and Lisa E. Sachs

Print publication date: 2009

Print ISBN-13: 9780195388534

Published to Oxford Scholarship Online: May 2009

DOI: 10.1093/acprof:oso/9780195388534.001.0001

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Do Bilateral Tax Treaties Promote Foreign Direct Investment? *

Do Bilateral Tax Treaties Promote Foreign Direct Investment? *

The Effect of Treaties on Foreign Direct Investment

Bruce A. Blonigen

Ronald B. Davies

Oxford University Press

This chapter provides some evidence on the effect of bilateral tax treaties on foreign direct investment (FDI) activity. Using Organization for Economic Cooperation and Development's (OECD) data, it shows that new treaty activity (during the 1983–1992 period) suggests strong negative impacts on FDI. Despite the positive correlation in the case of much older treaties, this evidence cannot be weighed heavily since FDI activity before these treaties were in place cannot be observed. The results are consistent with previous work by Blonigen and Davies (2001) using only U.S. data. Thus, in conjunction with this earlier work, the results cast doubt upon the FDI promotion rationale for treaty formation, which stands in contrast to the conventional wisdom among many economists and lawyers.

Keywords:   taxation, FDI, investment promotion, treaty formation, Blonigen and Davies

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