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International Economics and Economic Policy

, Volume 10, Issue 2, pp 247–275 | Cite as

Do trade and investment agreements lead to more FDI? Accounting for key provisions inside the black box

  • Axel Berger
  • Matthias Busse
  • Peter NunnenkampEmail author
  • Martin Roy
Original Paper

Abstract

The previous literature provides a highly ambiguous picture on the impact of trade and investment agreements on FDI. Most empirical studies ignore the actual content of BITs and RTAs, treating them as “black boxes”, despite the diversity of investment provisions constituting the essence of these agreements. We overcome this serious limitation by analyzing the impact of modalities on the admission of FDI and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI flows between 1978 and 2004. We find that FDI reacts positively to RTAs only if they offer liberal admission rules. Dispute settlement provisions play a minor role. While RTAs without strong investment provisions may even discourage FDI, the reactions to BITs are less discriminate with foreign investors responding favourably to the mere existence of BITs.

Keywords

Foreign direct investment Bilateral investment treaties Regional trade agreements Admission rules Investor-state dispute settlement 

JEL Classification

F21 F23 K33 

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Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  • Axel Berger
    • 1
  • Matthias Busse
    • 2
  • Peter Nunnenkamp
    • 3
    Email author
  • Martin Roy
    • 4
  1. 1.German Development InstituteBonnGermany
  2. 2.Ruhr-University of BochumBochumGermany
  3. 3.Kiel Institute for the World EconomyKielGermany
  4. 4.Secretariat of the World Trade OrganizationGenevaSwitzerland

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