Impacts of Bilateral Investment Treaties on Foreign Direct Investment in Developing Economies of South Asia

Abstract

Foreign direct investment has been considered as one of the most important factors that influence the progress of economic growth and development, especially in the case of developing and emerging economies like south Asian countries. There are certain factors that influence the inflows of foreign capital to the host nations such as human capital, economic stability, infrastructure development and market size. Bilateral investment treaties is one among such factors which have found previously to have significant impact on the inward flows of foreign capital in many region across the world. This study examined the impact of bilateral investment treaties on foreign direct investment in the context of south Asian countries by using the data collected over the period of 23 years (1998-2020). The study has collected data for all the variables under the analysis of the study for the given time period. The Hussmann test validates the use of fixed effect model for the analysis of the data. The study found that bilateral investment treaties signed and enforced have a significantly positive relationship with foreign direct investment while BIT singed has negative relationship with FDI in the context of south Asian countries. The findings of the study also suggest that economic development, macro-economic stability, market size, trade openness, and human capital have significantly effects foreign direct investment inflows to these countries.