BITs and Institutional Quality
Bilateral Investment Treaties are designed to increase investment flows to the signatory states. Section 4.2.1, reviewing the empirical evidence regarding BITs, revealed that some studies have found robust evidence that BITs indeed have a positive impact on investment flows. In addition, BITs might not only fulfil their stated purpose of attracting FDI but may also have external effects on domestic institutional quality. These external effects have been suggested to be either of a positive or negative nature. As the importance of institutional quality on economic growth has been emphasised by a number of authors, the question of an interaction between BITs and domestic institutional quality is of high relevance. This chapter addresses the question of the interplay between BITs and institutional quality using panel data in a fixed effects model. Specifically, we run regressions using the World Governance Indicators as the dependent variable over the time period 1996 to 2007 for non-OECD countries. The number of BITs and changes in domestic regulation in the field of investment are utilised as independent variables. The analysis further controls for GDP per capita, FDI inflows, trade openness, development aid and membership of the ICSID convention.
KeywordsTrade Openness Institutional Quality Domestic Institution Bilateral Investment Treaty Domestic Regulation
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