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Seminar: Back to BITs and bites: Do trade and investment agreements promote Foreign Direct Investment within Latin America?


Monday 12 Nov 2018
From 12PM To 2PM

Marta Bengoa (Colin Powell School at City University of New York and Open Political Economy Network London) presented the highlights of the paper "Back to BITs and bites: Do trade and investment agreements promote Foreign Direct Investment within Latin America?" co-written in December 2017 with Blanca Sanchez-Robles (Universidad Nacional de Educación a Distancia) and Yochanan Shachmurove (City University of New York, University of Pennsylvania).



In this paper we investigate the differential impact of regional trade agreements (RTAs) and bilateral investment treaties (BITs) on intra-regional foreign direct investment (FDI) across Latin American countries from 1995 to 2012. We use an augmented gravity model in which we control for cross-country heterogeneity, multilateral resistances and endogeneity of RTAs/BITs. This study empirically reveals that belonging to a well-established RTAs, such as MERCOSUR, is significantly more effective than the enforcement of BITs, in fostering intra-regional FDI. We observe heterogeneous impacts within the bloc: BITs exert a positive but small effect, with an estimated increase in FDI stocks betwe 4-7.25%, for middle income countries such as Argentina, Brazil, Chile, Costa Rica, Mexico and Uruguay. However, we observe a non-significant effect on middle-low income countries as Bolivia, Colombia, Ecuador, Peru and Paraguay.

Our results suggest that political risk and the level of institutional development in the host country act as strong determinants of BITs effectiveness. Furthermore, we find that the main determinants affecting intra-bloc FDI are factor endowments and market potential. These findings shed clarity into the current debate on the effectiveness of BITs versus RTAs as an adequate mechanism to attract foreign investment.

Marta Bengoa

A CIRANO Associate Researcher and Fellow since 2018, Marta Bengoa is Associate Professor at the Colin Powell School for Civic and Global Leadership at City College of The City University of New York (CUNY-CCNY). She is also Senior Fellow at the Open Political Economy Network and serves as an External Research Fellow at the Institute of International Economics in the University Jaume I and University of Valencia in Spain.

Holding a Ph.D. in Economics from the University of Cantabria, her research interests span migration, trade, productivity growth and its link to R&D, foreign direct investment determinants, the computation of home bias in trade and its impact on foreign direct investment patterns.

Marta Bengoa has a postdoctoral fellowship at the Department of Economics at the University of California at Berkeley. In addition, she has been visiting scholar and visiting professor at the Department of Economics at Columbia University, the Free Market Foundation, University of Costa Rica, University Federico Santa María and Universidad of Azuay.

She has also collaborated with the World Bank and UN in different projects about economic growth in Latin America, and has conducted fieldwork for the AECI (Spanish International Cooperation Agency) in the Ecuadorian Amazonia.

She has published numerous articles about the determinants of economic growth and incidence of inequality and poverty in Latin America (Applied Economic Letters, Journal of Policy Modeling, and European Journal of Political Economy, among others).

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