The Impact of Bilateral Investment Treaties on FDI Dynamics

Abstract

This paper investigates the impact of bilateral investment treaties (BITs) on foreign direct investment (FDI) in transition countries. FDI stocks are characterised by sluggish adjustment and a dynamic pattern. This leads to biased estimates of the contemporaneous impact of BITs on FDI in static models. In our application, the contemporaneous (short-run) impact of BITs amounts to 4.8 per cent and the long-run effect to 8.9 per cent in the preferred model. Copyright 2007 The Authors Journal compilation Blackwell Publishing Ltd. 2007 .

21st Century Regionalism: Filling the Gap between 21st Century Trade and 20th Century Trade Rules

“…10 BITs impact on FDI flows has been recently estimated by, for example, Egger and Merlo (2007). 11 See, for example, http://www.state.gov/documents/organization/117601.pdf.…”

Institutional Reforms Debate and FDI Flows to MENA Region: Does One 'Best' Fit All?

“…The fourth finding clearly identifies a geographical gap in literature coverage, which this paper attempts to fill. (Egger and Merlo 2007); and the impact of treaties as proliferation across countries (Tobin and Rose-Ackerman 2006). We briefly survey below these studies keeping in mind first the impact on FDI and second the finer strand addressed.We leave for the footnotes the empirical model and estimation methodology adopted.…”

“…Accounting for the long-run dynamic effect of BITs on FDI and adopting a firstdifferenced generalized method of moments (GMM) estimator, Egger and Merlo (2007) use bilateral FDI stocks covering 24 home and 28 host OECD and transition countries in the period 1980-2001. 11 They find that the long-run impact of BITs on FDI is nearly double the short-run effect.…”

Adjustment Dynamics of Bilateral Trade Flows: Theory and Evidence

“…A dynamic approach has also been applied by Egger and Merlo (2007) to stocks of outward foreign direct investments. The sample mainly consists of OECD countries and covers the period 1980-2001.…”