Foreign Direct Investment and Bilateral Investment Treaties: an International Political Perspective

Desbordes Rodolphe (1) , Vincent Vicard (2, 3)

1 University of Strathclyde [Glasgow]
2 CES - Centre d'économie de la Sorbonne
3 PSE - Paris School of Economics

This paper investigates the effect of the implementation of bilateral investment treaties (BITs) on the bilateral stocks of foreign direct investment (FDI). We argue that the understanding of how BITs affect FDI requires recognising that multinational enterprises (MNEs) are not Stateless and that their investment return may well depend on the quality of political relations between the home and host countries. Using bilateral FDI data and event data to measure political interactions between countries, we show that the effect of the entry into force of a BIT crucially depends on the quality of political relations between the signatory countries; it increases FDI more between countries with tense relationships than between friendly countries. We also find evidence that BITs and good domestic institutions are complementary. BITs should therefore be understood as a mechanism for host governments to credibly commit not to expropriate investors in the future.

Mots clés: Foreign Direct Investment; Interstate Political Relations; Bilateral Investment Treaties; Institutions

Domaines: Economies et finances

Desbordes Rodolphe, Vincent Vicard. Foreign Direct Investment and Bilateral Investment Treaties: an International Political Perspective. Journal of Comparative Economics, 2009, 37 (3), pp.372-386. ⟨10.1016/j.jce.2009.05.001⟩. ⟨halshs-00395101⟩