آیا معاهدات سرمایه گذاری دو جانبه، سرمایه گذاری مستقیم خارجی در کشورهای در حال توسعه را افزایش می دهد؟

Foreign investors are often skeptical toward the quality of the domestic institutions and the enforceability of the law in developing countries. Bilateral investment treaties (BITs) guarantee certain standards of treatment that can be enforced via binding investor-to-state dispute settlement outside the domestic juridical system. Developing countries accept restrictions on their sovereignty in the hope that the protection from political and other risks leads to an increase in foreign direct investment (FDI), which is also the stated purpose of BITs. We provide the first rigorous quantitative evidence that a higher number of BITs raises the FDI that flows to a developing country. This result is very robust to changes in model specification, estimation technique, and sample size. There is also some limited evidence that BITs might function as substitutes for good domestic institutional quality, but this result is not robust to different specifications of institutional quality.

Developing countries sign bilateral investment treaties (BITs) in order to attract more foreign direct investment (FDI). In recent decades, BITs have become “the most important international legal mechanism for the encouragement and governance” of FDI (Elkins, Guzman, & Simmons, 2004, p. 0). The preambles of the thousands of existing BITs state that the purpose of BITs is to promote the flow of FDI and, undoubtedly, BITs are so popular because policy makers in developing countries believe that signing them will increase FDI. But do these treaties fulfil their stated purpose and attract more FDI to developing countries that submit to the obligations of a BIT? Despite the large and increasing number of BITs concluded, there exists very little evidence answering this question. Most existing scholarships, typically written with a legal perspective, simply restrict themselves to an analysis of the BIT practice of one country or certain similar provisions in a range of BITs (Vandevelde, 1996, p. 545). This omission is strange given that the question is of great importance to developing countries. They invest time and other scarce resources to negotiate, conclude, sign, and ratify BITs. Such treaties represent a nontrivial interference with the host countries’ sovereignty as they provide protections to foreign investors that are enforceable via binding investor-to-state dispute settlement. While the motivations driving developing countries to incur these costs may be varied (see Elkins et al., 2004, Guzman, 1998 and Neumayer, 2005), the costs might be justified if the ultimate outcome is an increase in the inward flow of FDI.1 But is this what actually occurs? In the absence of hard, quantitative evidence, some observers have been rather pessimistic toward the effect of BITs on FDI location. Sornarajah (1986, p. 82), for example, suggests that “in reality attracting foreign investment depends more on the political and economic climate for its existence rather than on the creation of a legal structure for its protection.” An expert group meeting sponsored by the United Nations Conference on Trade and Development (UNCTAD) in 1997 reportedly held a similar position (Raghavan, 1997). Supportive of this view is that some major hosts of FDI such as Brazil or Mexico for a long time were reluctant to sign BITs. As UNCTAD (1998, p. 141) has put it in a review of BITs from almost a decade ago: “There are many examples of countries with large FDI inflows and few, if any, BITs.” And yet, most developing countries have signed a great many BITs by now. Is there evidence that those that have signed more BITs have also managed to attract more FDI? Two studies analyze this issue over the period 1980–2000 (Hallward-Driemeier, 2003 and Tobin and Rose-Ackerman, 2005) and one over the period 1991–2000 (Salacuse & Sullivan, 2005). The first study by Hallward-Driemeier (2003) does not find any statistically significant effect. The second study by Tobin and Rose-Ackerman (2005) finds a negative effect at high levels of risk and a positive effect only at low levels of risk, with the majority of developing countries falling into the high-risk category. The third study by Salacuse and Sullivan (2005) finds a positive effect only for United States BITs, but not for BITs from other countries of the Organization of Economic Co-operation and Development (OECD). The existing evidence goes against expectation and would suggest that the enormous amount of effort developing countries have spent on BITs has basically been wasted. One of the problems of existing studies is that they infer results from a rather restricted sample of countries (31 and 63, respectively) or are based on cross-sectional regressions. In contrast, we employ a much larger panel over the period 1970–2001, covering up to 119 countries. Importantly, we find a positive effect of BITs on FDI inflows that is consistent and robust across various model specifications. The effect is sometimes conditional on institutional quality, but is always positive and statistically significantly different from zero at all levels of institutional quality. To our knowledge, we provide the first hard evidence that there is a payoff to developing countries’ willingness to incur the costs of negotiating BITs and to succumb to the restrictions on sovereignty contained therein. Having demonstrated that BITs successfully increase the flow of FDI coming to a country, another important question that we address is whether BITs function as substitutes or complements to good institutional quality. Naturally, one would expect them to be substitutes, that is, they provide security and certain standards of treatment to foreign investors where domestic institutions fail to deliver the same security and standards. However, some, like Hallward-Driemeier (2003) argue that BITs might only be seen as credible in an environment of good institutional quality. This would imply that BITs are most effective in countries where they are least needed. Our results provide some limited evidence that BITs might function as substitutes to poor institutional quality, which would suggest that they are most effective where such quality is low and that they are most successful where they are needed most. However, this result is not robust to different specifications of institutional quality. This article is structured as follows: Section 2 briefly describes the well-known fact of increasing importance of foreign investment to developing countries, illustrates the growth of BITs, and analyzes the role of their main provisions for the promotion of FDI. We then review the three existing empirical studies and discuss their shortcomings, which we aim to overcome in our own analysis. After presenting our research design, we report results and test the sensitivity of results to important changes in model specification. The final section concludes.

Developing countries that sign more BITs with developed countries receive more FDI inflows. The effect is robust to various sample sizes, model specifications, and whether or not FDI flows are normalized by the total flow of FDI going to developing countries. There is some limited evidence that BITs function as substitutes for institutional quality, as in a few estimations the interaction term between the accumulated number of BIT variable and institutional quality is negative and statistically significant. The message to developing countries therefore is that succumbing to the obligations of BITs does have the desired payoff of higher FDI inflows. To our knowledge, ours is the first study to provide robust empirical evidence that BITs fulfil their stated objective. Those with particularly poor domestic institutional quality possibly stand most to gain from BITs, but there is no robust and consistent evidence for this. Why do we come to different conclusions than the three other relevant studies? Hallward-Driemeier’s (2003) study does not allow for a signaling effect and suffers from a small nonrepresentative sample due to the dyadic research design. Salacuse and Sullivan’s (2005) analysis is cross-sectional and therefore cannot detect how a higher number of BITs raises the flow of FDI to signatory developing countries over time. The difference to the results presented by Tobin and Rose-Ackerman (2005) is more puzzling. As we noted in the sensitivity analysis, our results uphold if we adopt their five-year period-averages approach and restrict the list of countries to be exactly the same as in their analysis. It is therefore difficult to know where the difference comes from. One possibility is that we do not log the number of BITs, not least because the log of zero (BITs) is not defined. Whatever the cause, we find from Tobin and Rose-Ackerman’s (2005) result, that each additional BIT lowers (rather than raises) the flow of FDI to developing countries with high political risk as extremely difficult to believe. BITs might not raise FDI flows in contexts of high risk, but there is no reason whatsoever to expect that they should lower FDI flows. Statistical significance is not equivalent to substantive importance. We therefore need to know how strong is the effect of the BIT variable on FDI flows. How much more FDI can a developing country expect if it aggressively engages in a program to sign BITs with developed countries? To answer this question, we look at a one standard deviation increase in the BIT variable (equivalent to an increase of around 27 in the weighted cumulative BIT variable running from 0 to 99). Since in some regressions the interaction effect between the BIT variable and institutional quality is statistically significant, the overall effect of signing up to BITs sometimes depends on the level of institutional quality, in which case, for simplicity, we fix institutional quality at its median.14 Based on the estimations in Table 3, a country experiencing a one standard deviation increase in the BIT variable, is predicted to increase its FDI inflow by between 43.7% and 93.2%. Based on the results from Table 4, such a country is predicted to increase its share of FDI inflow relative to the total inflow to developing countries by between 42.0% and 104.1%. Clearly, these are nonnegligible increases following a substantial increase in BIT activity. But whether the demonstrated benefits of signing up to BITs in the form of increased FDI inflows are higher than the substantial costs developing countries incur in negotiating, signing, concluding, and complying with the obligations typically contained in such treaties is impossible to tell. What we do know is that BITs fulfil their purpose, and those developing countries that have signed more BITs with major capital exporting developed countries are likely to have received more FDI in return.