The Impact Of Investment Treatys On Development

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In the past few decades, the popularity of investment treaties outlining the protection and promotion of foreign investors in developing countries has grown exponentially, particularly with Bilateral Investment Treaties, or BITs. Historically, these treaties have been between developed countries of the Global North and developing countries of the Global South with the belief that foreign investment contributes to economic growth and development in developing countries. The positive economic effect of BITs on development has sparked research into how economic liberalization affects development. The most pertinent literature regarding investment treaties and development is divided into four categories: (1) the impact of BITs on Foreign…show more content…
But for a long time, there lacked evidence confirming that bilateral investment treaties increased inward flow of foreign investment to developing countries. In their influential and informative study on the impact of BITs on the amount of investment in developing countries, Eric Neumayer and Laura Spess used a large-n neo-positivist methodology of the absolute amount of FDI going to a developing country and the cumulative number of BITs a developing country had signed with OECD countries. They found that BITs are positively correlated with the amount of foreign investment because BITs reassure investors by guaranteeing treatment that is equal to and sometimes better than treatment afforded to domestic firms in developing countries. Contrastingly, a few scholars believe that BITs do nothing in regards of international investment. Mary Hallward-Driemeier conducted similar large-n neo-positivist study of BITs between OECD countries and 31 developing countries and found that BITs do not stimulate substantial investment because by her analysis, countries signing BITs are already committed to reforming and stabilizing domestic institutions. However, other studies suggest that not all countries signing BITs are reforming domestic institutions and instead use BITs to show a desire to do so in the future. Furthermore, there is a possibility of reverse causation in Hallward-Driemeier’s study in that countries may sign BITs because of already extensive FDI
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