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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 Impact of Bilateral Investment Treaties on Foreign Direct Investment *

The Impact of Bilateral Investment Treaties on Foreign Direct Investment *

The Effect of Treaties on Foreign Direct Investment

Peter Egger

Michael Pfaffermayr

Oxford University Press

This chapter conducts an empirical assessment of the impact of BITs on FDI stocks. It estimates several variants of the knowledge-capital model of multinational enterprises (MNEs) using the largest available panel of outward FDI stocks provided by the Organization for Economic Cooperation and Development (OECD), which contains FDI of OECD countries into both OECD and non-OECD economies. It shows significant and positive impact of ratified BITs throughout. The estimated effect of BITs on real outward FDI stocks amounts to about 30% in the preferred specification. The chapter also looks at whether simply signing a BIT will have a positive anticipation effect. It finds a positive impact from signing a treaty, although its magnitude is smaller than that associated with the ratification of an existing treaty. However, the estimated anticipation effect is insignificant, in most specifications, leading the conclusion that the advantages to simply signing a BIT are inconsequential.

Keywords:   BITs, FDI, multinational enterprises, MNE, FDI stocks

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