Unpublished Paper
How Trade and Investment Agreements Affect Bilateral Foreign Direct Investment: Results from a Structural Gravity Model
KVL Discussion Paper No. 2020-02, KVL Economic Policy Research (Den Bosch, The Netherlands)
(2020)
Abstract
The paper develops a new stand-alone structural gravity model for explaining bilateral FDI patterns. We employ the model to analyse the impact of preferential trade agreements (PTAs), bilateral investment treaties (BITs) and other policies on bilateral foreign direct investment (FDI). We use the UNCTAD global database on bilateral FDI stocks and flows. To control for the heterogeneous nature of PTAs, we employ two different indicators of PTA depth. We find that on average signing a PTA increases bilateral FDI stocks by around 30%. Nevertheless, we also find that ‘deeper’ or comprehensive PTAs (e.g., including provisions on investment, public procurement and intellectual property rights provisions) do not have a significantly different impact than signing regular PTAs. Belonging to the EU single market, on the other hand, has a strong impact and increases bilateral FDI by around 135%, and signing a BIT has an effect that is comparable to signing a PTA.
Keywords
- bilateral FDI,
- bilateral investment treaties,
- structural gravity model,
- PTAs
Disciplines
Publication Date
Spring June 1, 2020
Comments
The paper will appear in The World Economy, later in 2020. Cf. World Economy 2020;00:1–40.
https://doi.org/10.1111/twec.13002
Citation Information
Kox, HLM and H. Rojas-Romagosa (2020), How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model, KVL Discussion Paper No. 2020-02, KVL Economic Policy Research, Den Bosch (The Netherlands).