Do Bilateral Investment Treaties Increase Foreign Direct Investment to Developing Countries?

Abstract This chapter addresses the question of whether of bilateral investment treaties (BITs) increase foreign direct investment (FDI) to developing countries. 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. The message to developing countries, therefore, is that succumbing to the obligations of BITs does have the desired payoff of higher FDI inflows.