Evaluating the effect of Bilateral Investment Treaties on Foreign Direct Investments and the role of Democracy
(2017) NEKH02 20171Department of Economics
- Abstract
- Foreign direct investments (FDI) have in later years become regarded as a key engine
to economic growth, which many developing countries find appealing. Developing
countries do however often find it hard to attract FDI since they have an unstable
political environment due to inferior levels of democracy. To overcome this issue,
they turn to bilateral investment treaties (BITs) with the hope that they will increase
their chances of attracting FDI. BITs provide a safety mechanism for foreign
investments, and the question is whether the effect of such agreements is depending
on the level of democracy in the host country.
Using a sample of FDI flows of 20 source OECD countries with 89 partner
countries covering the time period of... (More) - Foreign direct investments (FDI) have in later years become regarded as a key engine
to economic growth, which many developing countries find appealing. Developing
countries do however often find it hard to attract FDI since they have an unstable
political environment due to inferior levels of democracy. To overcome this issue,
they turn to bilateral investment treaties (BITs) with the hope that they will increase
their chances of attracting FDI. BITs provide a safety mechanism for foreign
investments, and the question is whether the effect of such agreements is depending
on the level of democracy in the host country.
Using a sample of FDI flows of 20 source OECD countries with 89 partner
countries covering the time period of 1996-2013, this paper has its focus on whether
the effect of BITs on FDI is affected by the degree of democracy in the host country.
Estimations are obtained by using a gravity model approach alongside with
knowledge-capital model variables. To estimate the effect of democracy, two
democracy indicators provided by the Kaufmann indices have been employed.
Our empirical findings suggest that BITs do not have any effect on FDI while
the democracy variable of rule of law has a positive effect on FDI. However, our
findings cannot show evidence of democracy having an impact of the effect of BITs
and hence not confirm the link between BITs’ effect on FDI and the level of
democracy in the host country. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/8923366
- author
- Ekstam, Anna LU
- supervisor
- organization
- course
- NEKH02 20171
- year
- 2017
- type
- M2 - Bachelor Degree
- subject
- keywords
- Foreign direct investments, Bilateral investment treaties, Democracy
- language
- English
- id
- 8923366
- date added to LUP
- 2017-09-12 11:56:12
- date last changed
- 2017-09-12 11:56:12
@misc{8923366, abstract = {{Foreign direct investments (FDI) have in later years become regarded as a key engine to economic growth, which many developing countries find appealing. Developing countries do however often find it hard to attract FDI since they have an unstable political environment due to inferior levels of democracy. To overcome this issue, they turn to bilateral investment treaties (BITs) with the hope that they will increase their chances of attracting FDI. BITs provide a safety mechanism for foreign investments, and the question is whether the effect of such agreements is depending on the level of democracy in the host country. Using a sample of FDI flows of 20 source OECD countries with 89 partner countries covering the time period of 1996-2013, this paper has its focus on whether the effect of BITs on FDI is affected by the degree of democracy in the host country. Estimations are obtained by using a gravity model approach alongside with knowledge-capital model variables. To estimate the effect of democracy, two democracy indicators provided by the Kaufmann indices have been employed. Our empirical findings suggest that BITs do not have any effect on FDI while the democracy variable of rule of law has a positive effect on FDI. However, our findings cannot show evidence of democracy having an impact of the effect of BITs and hence not confirm the link between BITs’ effect on FDI and the level of democracy in the host country.}}, author = {{Ekstam, Anna}}, language = {{eng}}, note = {{Student Paper}}, title = {{Evaluating the effect of Bilateral Investment Treaties on Foreign Direct Investments and the role of Democracy}}, year = {{2017}}, }