The politics of foreign direct investment into developing countries: increasing FDI through international trade agreements?

TitleThe politics of foreign direct investment into developing countries: increasing FDI through international trade agreements?
Publication TypeJournal Article
Year of Publication2008
AuthorsButhe T, Milner HV
JournalAmerican journal of political science
Volume52
Issue4
Pagination - 762
Date PublishedOct 2008
ISBN Number0092-5853, 0092-5853
KeywordsDeveloping Countries, Economic growth, Economics, Foreign direct investment, GATT, International agreements, International Relations, International trade, Statistical analysis, Trade agreements, World economy, World Trade Organization
AbstractThe flow of foreign direct investment into developing countries varies greatly across countries and over time. The political factors that affect these flows are not well understood. Focusing on the relationship between trade and investment, we argue that international trade agreements - GATT/WTO and preferential trade agreements (PTAs) - provide mechanisms for making commitments to foreign investors about the treatment of their assets, thus reassuring investors and increasing investment. These international commitments are more credible than domestic policy choices, because reneging on them is more costly. Statistical analyses for 122 developing countries from 1970 to 2000 support this argument. Developing countries that belong to the WTO and participate in more PTAs experience greater FDI inflows than otherwise, controlling for many factors including domestic policy preferences and taking into account possible endogeneity. Joining international trade agreements allows developing countries to attract more FDI and thus increase economic growth. Reprinted by permission of Blackwell Publishers
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