What Determines BITs?

50 Pages Posted: 18 Jul 2011

See all articles by Jeffrey H. Bergstrand

Jeffrey H. Bergstrand

University of Notre Dame

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; ETH Zürich; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: July 18, 2011

Abstract

Bilateral investment treaties (BITs) have proliferated over the past 50 years such that the number of pairs of countries with BITs is roughly as large as the number of country-pairs that belong to bilateral or regional preferential trade agreements (PTAs). The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of BITs and of the likelihood of BITs between pairs of countries using a qualitative choice model, and in a manner consistent with explaining PTAs. We develop the econometric specification for explaining the two based upon a general equilibrium model of world trade and foreign direct investment with three factors, two products, and explicit natural as well as policy trade and investment costs among multiple countries in the presence of national and multinational firms. The empirical model for BITs and PTAs is bivariate in nature and supports a set of hypotheses drawn from the general equilibrium model. Using the preferred empirical model, we correctly predict approximately 85 (75) percent of all BITs (PTAs) correctly, relative to an unconditional probability of only 11 (16) percent.

Keywords: bilateral investment treaties, foreign direct investment, multinational firms, free trade agreements, international trade

JEL Classification: F100, F200

Suggested Citation

Bergstrand, Jeffrey H. and Egger, Peter H., What Determines BITs? (July 18, 2011). CESifo Working Paper Series No. 3514, Available at SSRN: https://ssrn.com/abstract=1888170 or http://dx.doi.org/10.2139/ssrn.1888170

Jeffrey H. Bergstrand (Contact Author)

University of Notre Dame ( email )

Mendoza College of Business
Notre Dame, IN 46556
United States
574-631-6761 (Phone)
574-631-5255 (Fax)

HOME PAGE: http://www3.nd.edu/~jbergstr

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment ( email )

Poschingerstr. 5
Munich, DE-81679
Germany
+49 0 89 9224 1238 (Phone)
+49 0 89 985369 (Fax)

HOME PAGE: http://www.cesifo-group.de/portal/page?_pageid=36,425628&_dad=portal&_schema=PORTAL

ETH Zürich ( email )

LEE G104
Leonhardstrasse 21
Zurich
Switzerland

Ludwig-Maximilians University of Munich

Schackstr. 4
Munich, 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
134
Abstract Views
1,051
Rank
385,726
PlumX Metrics