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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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The Effects of Bilateral Tax Treaties on U.S. FDI Activity *

The Effects of Bilateral Tax Treaties on U.S. FDI Activity *

The Effect of Treaties on Foreign Direct Investment

Bruce A. Blonigen

Ronald B. Davies

Oxford University Press

This chapter presents the first estimates of the effects of bilateral treaties governing the taxation of foreign direct investment (FDI) on bilateral FDI activity. The chapter proceeds as follows. Section A discusses U.S. tax treaties including their history, how they are formed, and their key functions. Section B presents empirical methodology and data. Section C presents results and the last section concludes. There is no systematic evidence that bilateral tax treaties affect FDI activity, despite statements by the Organization for Economic Cooperation and Development (OECD) and other sources that such agreements are meant to increase the efficiency of world capital flows. Instead, the results suggest that either the provisions of a treaty have no effect, or the positive and negative aspects of treaty formation largely cancel one another.

Keywords:   foreign direct investment, taxation, OECD, investment activity, tax treaties

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