Do Bilateral Investment Treaties Affect FDI Flows? A Retrospective Study with Some Implications for Asia

Abstract

Effects of bilateral investment treaties (BIT) on foreign direct investment (FDI) has been controversial. Extending Neumayer et al. (2005) this paper supports the positive effects. In particular, we found this positive effect was observed when neighbouring countries competed for BIT ratification. This finding was robust regardless of using parametric (the difference-in-difference method) and non-parametric (i.e. the propensity score matching) estimation methods. One overall policy implication from our estimation to a country including the Asia region is that a country's policy function to attract FDI may need to take into account neighbouring countries FDI policies.