The effect of BITs, a two-sided story

Abstract: Bilateral Investment Treaty is an agreement designed to increase FDI between signatories. Historically the treaty is concluded between a developed country and a developing country, as a risk-lowering instrument. In recent years agreements carried out between developed countries has put more focus on investments and adopted contents of a BIT, examples of this is TTIP, TPP and CETA. Yet there is little evidence that these functions would in fact be beneficial in a developed context. Existing literature is limited to the relationship between developed and developing countries. Through a gravity model analysis this thesis tests the difference in effect of ratifying a BIT on FDI outflows from 31 OECD countries into 187 developing and developed host countries. The main findings confirm that the effect of a BIT between two developed countries is lower and in fact not apparent, in comparison to a BIT between a developed and a developing country in respect to FDI flows. The results are applicable on the debate concerning the content of TTIP and similar agreements. It also opens up for further research on this uncharted subject.