Do Bilateral Investment Treaties Promote Foreign Direct Investment?: A Dynamic Panel Data Approach

This study analyzes the impact of bilateral investment treaties on the inflow of foreign direct investment. For this purpose, we estimate a dynamic panel-data model using data on seventeen selected Asian countries for the period of 1984 to 2004. We find that bilateral investment treaties have promoted foreign direct investment, but that their effect diminishes in a country as the political environment stabilizes. A bilateral investment treaty can therefore function as a substitute for political stability. In addition, this study finds that, on average, a BIT ratified by a country in the selected Asian countries raises FDI by, on average, 5.4 percent in the long-run.