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Are stricter investment rules contagious?: host country competition for foreign direct investment through international agreements

Neumayer, Eric ORCID: 0000-0003-2719-7563, Nunnenkamp, Peter and Roy, Martin (2016) Are stricter investment rules contagious?: host country competition for foreign direct investment through international agreements. Review of World Economics, 152 (1). pp. 177-213. ISSN 1610-2878

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Identification Number: 10.1007/s10290-015-0231-z


We argue that competitive diffusion is a driver of the trend toward international investment agreements (IIAs) with stricter investment rules, namely defensive moves of developing countries concerned about foreign direct investment (FDI) diversion in favor of competing host countries. Accounting for spatial dependence in the formation of bilateral investment treaties (BITs) and preferential trade agreements (PTAs) that contain investment provisions, we find that the increase in agreements with stricter provisions on investor-state dispute settlement and pre-establishment national treatment is a contagious process. Specifically, a developing country is more likely to sign an agreement with weak investment provisions if other developing countries that compete for FDI from the same developed country have previously signed agreements with similarly weak provisions. Conversely, contagion in agreements with strong provisions exclusively derives from agreements with strong provisions that other FDI-competing developing countries have previously signed with a specific developed source country of FDI.

Item Type: Article
Official URL:
Additional Information: © 2015 Kiel Institute
Divisions: Geography & Environment
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
J Political Science > JF Political institutions (General)
J Political Science > JZ International relations
JEL classification: F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements
F - International Economics > F5 - International Relations and International Political Economy > F53 - International Agreements and Observance; International Organizations
Date Deposited: 27 Oct 2015 14:49
Last Modified: 15 Apr 2024 01:03

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