A BIT Far? : Geography, International Economic Agreements, and Foreign Direct Investment - Evidence from Emerging Markets
How do international economic agreements influence the investment patterns of firms from emerging economies? This paper studies the ways in which bilateral investment treaties and preferential trade agreements interact with geographic and cultural...
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/734061504793009047/A-bit-far-geography-international-economic-agreements-and-foreign-direct-investment-evidence-from-emerging-markets http://hdl.handle.net/10986/28362 |
| Summary: | How do international economic agreements
influence the investment patterns of firms from emerging
economies? This paper studies the ways in which bilateral
investment treaties and preferential trade agreements
interact with geographic and cultural distance to influence
firms' investment patterns. How does geographic and
cultural proximity affect the impact of international
economic agreements on foreign direct investment flows? This
question is answered using data from an original survey of
700 firms from four emerging (or newly-emerged) economies:
Brazil, India, the Republic of Korea, and South Africa. The
findings suggest that bilateral investment treaties and
preferential trade agreements increase the likelihood of
foreign direct investment. Yet, the effects of these
agreements on foreign direct investment depend on the
distance between the origin and potential destination
countries. Moreover, trade and investment agreements appear
to interact differently with distance. By providing
guarantees to investors and signaling credible commitment
from host governments, bilateral investment treaties
mitigate the higher uncertainty and transaction costs
associated with investing in faraway, unfamiliar markets. By
contrast, the investment attraction effectiveness of
preferential trade agreements fades with distance. |
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