Improving reputation BIT by BIT: Bilateral Investment Treaties, domestic institutions, and foreign accountability

Journal article

The literature on foreign direct investment (FDI) has paid an increasing interest to international institutions such as bilateral investment treaties (BITs), but whether BITs help attract FDI is an unsettled question. Building on the exist¬ing literature, this article argues that BITs can change investors’ perceptions and the corresponding investment they make because signing BITs signals the involvement of another powerful country that is able to compel the host government to comply. This implies that the effect of BITs is not constant across signatory countries: BITs are more effective when they are signed with rich and influential countries. Using monadic and dyadic FDI data, this article finds that BITs signed with powerful countries (defined as the top six largest economies) lead to an increase in FDI inflows (both from these signatory countries and from other countries). BITs signed with other countries, despite in a larger quantity, have little influence on FDI inflows.

Authors: Lee, CY; Johnston, NP

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Taylor and Francis
• Journal: International Interactions: Empirical and Theoretical Research in International Relations
• Volume: 42
• Issue: 3
• Pages: 429-451
• Publication date: 2015-03-01
• DOI: 10.1080/03050629.2016.1128429
• EISSN: 1547-7444
• ISSN: 0305-0629
• Language: English
• Keywords: bilateral investment treaty; foreign aid; foreign direct investment; foreign power; international institutions; OECD countries