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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 Investment Treaties Increase Foreign Direct Investment to Developing Countries? *

Do Bilateral Investment Treaties Increase Foreign Direct Investment to Developing Countries? *

The Effect of Treaties on Foreign Direct Investment

Eric Neumayer

Laura Spess

Oxford University Press

This chapter addresses the question of whether of bilateral investment treaties (BITs) increase foreign direct investment (FDI) to developing countries. Developing countries that sign more BITs with developed countries receive more FDI inflows. The effect is robust to various sample sizes, model specifications, and whether or not FDI flows are normalized by the total flow of FDI going to developing countries. There is some limited evidence that BITs function as substitutes for institutional quality. The message to developing countries, therefore, is that succumbing to the obligations of BITs does have the desired payoff of higher FDI inflows.

Keywords:   BIT, FDI, developing countries, investment inflows

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