Investor Reputation and Bilateral Investment Treaties: The Path to Growth?

• In Event: Poster Session: International Political Economy I

Abstract

For a long time, scholars have assumed that the signing of bilateral investment treaties (BITs) improves the reputation of the country as an attractive and amicable place for investment. Indeed, I do believe this is the case, but I want to see more concrete evidence of this, and it is lacking—not as much as to reputation among other countries, but specifically as to reputation among major potential foreign investors. After all, while a country may sign a BIT secondarily to please another country, it is primarily signing a BIT to become attractive for investment. I use three raters—the Doing Business Report from the World Bank, the Index of Economic Freedom from the Heritage Foundation and The Wall Street Journal, and a subset of the Global Competitiveness Report from the World Economic Forum—to form an index of investor reputation, since these raters mostly come from surveys of investors, and not from politicians. I compare this to the BIT dataset available from the World Bank and determine primarily whether BITs have an effect on the ratings (do investors care?). However, I additionally examine the opposite side of it: do countries with low reputational scores sign more new BITs (i.e. a higher year-over-year growth rate) than countries with high reputational scores? I hope to open a new research agenda into the power of business leaders to open up foreign markets that politicians and diplomats may not alone possess, and also to inform developing countries that they perhaps must primarily please foreign investors, rather than foreign governments, if they wish to develop using foreign investment.

Author

• Hayden Jackson, University of Michigan, Ann Arbor