Do bilateral investment treaties attract foreign direct investment? The role of international dispute settlement provisions

Abstract This paper studies the effects of the strength of bilateral investment treaties ( BIT s) on foreign direct investment ( FDI ) activity. We develop an index for the strength of international dispute settlement provisions included in BIT s in order to examine the role the content of BIT s plays in attracting FDI . To this end, we make use of data from UNCTAD 's International Investment Agreement Mapping Project and measure the provision strength of 2,571 BIT s. Using panel data of bilateral and total FDI inflows and inward FDI stocks, we study the effect of BIT s on FDI . Our main finding indicates that stronger international dispute settlement provisions in BIT s are indeed associated with positive effects on FDI activity.