Do bilateral investment treaties attract other types of capital flows other than FDI?

What is it about?

This paper examines the influence of political risk guarantees of bilateral investment treaties on debt and equity flows using panel data on middle income countries for the period 1984-2011. The paper finds that ratified bilateral investment treaties with OECD countries have a combined positive influence on non-guaranteed debt flows and a direct positive influence on portfolio equity flows. The results highlight the importance of considering political risk guarantees in financial integration, regulation of financial markets and institutions, and capital liberalization.

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Photo by Matthew Guay on Unsplash

Photo by Matthew Guay on Unsplash

Why is it important?

The paper contributes to the capital flows literature in one main respect: It examines the influence of bilateral investment treaties beyond FDI to different types of capital flows constituting foreign investment. This has not been examined in the capital flows literature before to the best of our knowledge. In addition, the paper distinguishes between non-guaranteed and guaranteed debt flows, helping to provide an understanding of long-term creditors’ responses to political risk guarantees, an issue that has not been explored before.

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