Nikolov, P., Weiner, R., & Jandhyala, S. (Submitted). BITter Harvest? Do Governments Protect Foreign MNEs Better Than Domestic Competitors?.
Abstract:Since the 1980s, governments in developing countries have been adopting laws and regulations intended to foster more attractive investment climates for foreign firms. Such adoptions have stirred a form of competition among LDC governments to create environments more conducive to foreign businesses. In fact, some economists have argued that governments may have gone too far in that MNEs could even receive better treatment than their domestic counterparts. In this paper, we examine this claim by focusing on a particular policy incentive for FDI– the Bilateral Investment Treaty (BIT). BITs are agreements between two governments that protect foreign investments in the partner country. We assess the effects of BITs on the value of comparable foreign and domestic investments. Our paper employs a more robust causal inference methodology than previous studies and overcomes empirical difficulties of small sample size and a small number of clusters of earlier work on the topic. We employ a large dataset on real investment in the international petroleum industry.