THREE ESSAYS ON FOREIGN DIRECT INVESTMENT AND BILATERAL INVESTMENT TREATIES
Open Access
- Author:
- Vashchilko, Tatiana
- Graduate Program:
- Political Science
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- January 04, 2011
- Committee Members:
- David Scott Bennett Jr., Dissertation Advisor/Co-Advisor
Dr Scott Bennett, Committee Chair/Co-Chair
Quan Li, Committee Chair/Co-Chair
Errol Anthony Henderson, Committee Member
Douglas William Lemke, Committee Member
Kathy Powers, Committee Member
Wenpin Tsai, Committee Member - Keywords:
- international investment
signaling theory
game theory
design of international institutions
BIT
FDI
investment agreement
GMM - Abstract:
- In the past several decades, a significant, worldwide expansion in bilateral investment treaties (BITs) occurred and aimed to improve protection for foreign investors’ rights and induce foreign direct investment (FDI). The assumption is that countries with BITs should have higher levels of FDI than those without them. However, the effects of BITs on FDI are empirically ambiguous. This contradiction motivates the current research. A signaling game-theory model of strategic interaction between a foreign investor and a state hosting an FDI identifies the conditions under which the designs of BITs facilitate FDI. Inherent in the designs of BITs is a tradeoff between the protection of foreign investor’s rights and the host state’s rights. Due to the investor’s uncertainty regarding the host state’s environment, a BIT serves as a signaling device, indicating the quality of the latter’s investment environment. The stringency of the design features becomes critical to whether or not the foreign investor decides to initiate a new investment project or reinvest earnings. The proposed model contributes to the study of foreign direct investment and international institutions. To test empirically the theoretical implications of the model, this study considers the content of expropriation provisions in 915 bilateral investment treaties (BITs) for the period 1984-2007. The data indicates not only commonalities, but also striking differences in BITs’ provisions for protection against expropriation, among treaty obligations, countries, and over time. To identify variations in the protection from expropriation, a newly developed categorization of BITs arises from analyzing the content variations in all obligations regarding expropriation. This study offers a new quantitative measure for the degree of legal protection against expropriation based on the systematic design variations in BITs’ expropriation provisions. Empirical analysis uses generalized method of moments (GMM). The empirical findings of the dissertation conform to the theoretical expectations that in high-risk countries, more stringent BITs facilitate FDI inflows, and in low-risk countries, BITs’ designs have no statistically significant effect on FDI. The research also suggests that, without more nuanced measures in institutional design variations in BITs, conclusions regarding the causes and effects of BITs can become overly general and biased.