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Evaluating the effect of Bilateral Investment Treaties on Foreign Direct Investments and the role of Democracy

Ekstam, Anna LU (2017) NEKH02 20171
Department 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)
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author
Ekstam, Anna LU
supervisor
organization
course
NEKH02 20171
year
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},
  keyword      = {Foreign direct investments,Bilateral investment treaties,Democracy},
  language     = {eng},
  note         = {Student Paper},
  title        = {Evaluating the effect of Bilateral Investment Treaties on Foreign Direct Investments and the role of Democracy},
  year         = {2017},
}