DO TRADE TREATIES INFLUENCE FDI FLOWS?
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An analysis of trade treaty networks (bilateral investment treaties and multilateral agreements) using Social Network Analysis to establish a correlation between signing of treaties and FDI inflows into developing countries. This analysis used UCINet 6 and Tableau 10 to visualize the data.
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DO TRADE TREATIES INFLUENCE FDI FLOWS?
- 1. DO TRADE TREATIES INFLUENCE FDI FLOWS? SOCIAL NETWORK ANALYSIS: FALL 2016 ABRAHAM CHERIAN Does signing international trade and investment treaties make developing countries more attractive hosts in the eyes of foreign investors? using
- 2. What are BITs? A bilateral investment treaty (BIT) is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state. Scholars and arbitrators have recognized that common principles underlie investment treaties. BITs typically provide for: Compensation in case of expropriation. Fair and equitable treatment of investment. Full protection and security. Non-discrimination (national and most-favored nation treatment). Multilateral Trade Agreements are agreements on trade issues between three or more countries. They are difficult to negotiate because of their complexity, but once agreed upon, they are very powerful and beneficial for the nations involved, giving each nation equal status in terms of trade and investments. Foreign Direct Investment (FDI) is an investment made by a company or individual from one country in business interests of another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. TREATIES, TRADE & FDI 3000 BITs Since 1959
- 3. Are Trade Treaties and FDI related? • A BIT has considerable effect on capital goods imports and on imports of differentiated goods • Studies suggest a strong positive correlation between the signing of bilateral investment treaties and increased inflows of foreign capital investments, even when controlling for a host of other country-level characteristics • Monterrey Consensus(2002) challenge : overcome the concentration of FDI in a few (large and relatively advanced) developing countries HOW DO TREATIES AFFECT FDI? FDI Inflow XX: Network Degree
- 4. Does signing of Bilateral Investment Treaties and joining Multilateral Trade Agreements lead to higher FDI flows for developing countries? TREATIES NOT WORKING FOR DEVELOPING COUNTRIES? Capital *favorable tax schemes *investment subsidies *advantageous regulations *exemptions More BITs Reduce domestic policy autonomy …..but, some developing countries are struggling to attract significant levels of FDI
- 5. SIGNING TRADE TREATIES DOES NOT IMPROVE FDI FLOWS AMONG DEVELOPING COUNTRIES *Network Efficiency(Measure of connection with other well connected countries) = Eigenvector x 100 FDI Inflows not related to number of treaties signed FDI Inflows are correlated with Outflows; high FDI outflows from Europe, US, Japan and China Most high FDI Inflow countries belong to the EU and the Energy Charter; Other multilateral treaties do not indicate a correlation. Sovereign Risk and Governance Score affect FDI inflow positively Within region – no common relationship between Network Efficiency and FDI inflows across regions
- 6. Afghanistan Albania Algeria Angola Antigua and Barbuda Argentina Armenia Australia Austria Azerbaijan BahrainBangladesh Barbados Belarus Belgium Belize Benin Bhutan Bolivia Bosnia and Herzegovina Botswana Brunei Darussalam Bulgaria Burkina Faso Burundi Côte d'Ivoire Cambodia Cameroon Canada Cape Verde CAR Chad Chile China Colombia Comoros Congo Congo, Democratic Republic of the Costa Rica Croatia Cuba Cyprus Czech Republic Denmark Djibouti Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea Eritrea Estonia Ethiopia Finland France Gabon Gambia Georgia Germany Ghana Greece Grenada Guatemala Guinea Guinea-Bissau Guyana HaitiHonduras Hong Kong Hungary Iceland India Indonesia Iran Iraq Ireland Israel Italy Jamaica Japan Jordan Kazakhstan Kenya Korea, Dem. People's Rep. of Korea, Republic of Kuwait Kyrgyzstan Laos Latvia Lebanon Lesotho Liberia Libya Lithuania Luxembourg Macao Macedonia Madagascar Malawi Malaysia Maldives Mali Malta Mauritania Mauritius Mexico Moldova Mongolia Montenegro Morocco Mozambique Myanmar Namibia Nepal NetherlandsNew Zealand Nicaragua Niger Nigeria Norway Oman Pakistan Palestine Panama Papua New Guinea ParaguayPeru Philippines Poland Portugal Qatar Romania Russian Federation Rwanda Saint Lucia Saint Vincent and the Grenadines San Marino Sao Tome and Principe Saudi Arabia Senegal Serbia Seychelles Sierra Leone Singapore Slovakia Slovenia Somalia South Africa Spain Sri Lanka Sudan Suriname Swaziland Sweden Switzerland Syria Taiwan Tajikistan Tanzania Thailand Timor-Leste Togo Tonga Trinidad and Tobago Tunisia Turkey Turkmenistan UAE Uganda UK Ukraine Uruguay USA Uzbekistan Venezuela Viet Nam Yemen Zambia Zimbabwe SCOPE : DO TREATIES BENEFIT AFRICAN ECONOMIES? 214 Countries, 6350 Ties Algeria Angola Benin Botswana Burkina Faso Burundi Côte d'Ivoire Cameroon CAR Chad Comoros Congo Congo, Democratic Republic of the Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tonga Tunisia Uganda Zambia Zimbabwe World Treaties Focus on Africa 55 Countries, 990 Ties
- 7. CREATING THE NETWORK Undirected Network Between countries through BITs and multilateral trade agreements based on data available with UNCTAD. Treaty network of tie strength greater than 2 was selected for analysis - implies that all countries with at least 2 ratified BIT or participating in two multilateral trade agreements would be included Country Parameters FDI Inflow (Mean from 2010-2014, flows, $ Mn) FDI Outflow (Mean from 2010-2014, flows, $ Mn) GDP 2014 ($ Bn) Governance Score (World Bank data) Sovereign Risk Score Trading Economics Rating- between 100 (riskless) and 0 (likely to default). BIT (Ratified) 2 BIT (Signed) 1 1 Multilateral Trade Treaty 1 1 BIT + 2 Multilateral Trade Treaties 3
- 8. FDI INFLOWS & OUTFLOWS ARE CORRELATED Size proportional to GDP Correlated by Region Net Investors Net Receivers By Country- Identifies Investors and Receivers
- 9. Afghanistan Albania Algeria Armenia Australia Austria Azerbaijan Bahrain Bangladesh Belarus Belgium Benin Bhutan Bolivia Brunei Darussalam Bulgaria Burkina Faso Cambodia Cameroon Canada Chad Comoros Côte d'Ivoire Croatia Cyprus Czech Republic Denmark Djibouti Egypt Estonia Finland France Gabon Gambia Georgia GermanyGreece Guinea Guinea-Bissau Guyana Hungary Iceland India Indonesia Iran Iraq Ireland Italy Japan Jordan Kazakhstan Kuwait Kyrgyzstan Laos Latvia Lebanon Libya Lithuania Luxembourg Malaysia Maldives Mali Malta Mauritania Mexico Mongolia Morocco Mozambique Myanmar Nepal Netherlands Niger Nigeria Norway Palestine Oman Pakistan Philippines Poland Portugal Qatar Romania Saudi Arabia Senegal Sierra Leone Singapore Slovakia Slovenia Somalia Spain Sri Lanka Sudan Suriname Sweden Switzerland Syria Tajikistan Thailand Togo Tunisia Turkey Turkmenistan Uganda Ukraine UAE UK USA Uzbekistan Viet Nam YemenASEAN EU Energy Charter GCC League of Arab States OIC SAFTA NAFTA FDI INFLOWS ARE LIMITED TO A FEW MULTILATERAL TREATIES Size proportional to FDI Inflow
- 10. Credit Score & FDI Inflow listed below Country Name NETWORK DOES NOT LEAD TO HIGHER FDI INFLOWS *Network Efficiency(Measure of connection with other well connected countries) = Eigenvector x 100 FDIInflow$M
- 11. MORE TREATIES = HIGHER FDI OUTFLOWS
- 12. LOW RISK & GOOD GOVERNANCE = HIGHER FDI INFLOWS Risk Score FDIInflows$M
- 13. High Level Leaders Credit Score listed below Country Name HIGH LEVEL LEADERS HAVE LOW RISK & GOOD GOVERNANCE SCORES Size proportional to GDP Network Efficiency USA
- 14. Algeria Angola Benin Botswana Burkina Faso Burundi Côte d'Ivoire Cameroon CAR Chad Comoros Congo Congo, Democratic Republic of the Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tonga Tunisia Uganda Zambia Zimbabwe AFRICA TREATY NETWORKS ARE DENSE, ALIGNED BY REGION 55 Countries, 990 tiesSize proportional to FDI Inflow Net FDI Outflow Countries East & Southern Africa Central Africa North & West Africa
- 15. MULTILATERAL TREATIES DON’T GENERATE HIGHER FDI INFLOWS Algeria Angola Benin Botswana Burkina Faso Burundi CameroonCAR Chad Comoros Congo Congo, Democratic Republic of the Côte d'Ivoire Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe AU CEMAC COMESA EAC ECCAS ECOWAS League of Arab States OIC Size proportional to FDI Inflow
- 16. Afghanistan Algeria Angola Azerbaijan Bangladesh Benin Bhutan Botswana Burkina Faso Burundi Côte d'Ivoire Cameroon CAR Chad China Comoros Congo Congo, Democratic Republic of the Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau India Iran Iraq Japan Kazakhstan Kenya Korea, Dem. People's Rep. of Korea, Republic of Kyrgyzstan Liberia Libya Madagascar Malawi Maldives Mali Mauritania MauritiusMongolia Morocco Mozambique Myanmar Nepal Niger Nigeria Pakistan Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sri Lanka Sudan Swaziland Tajikistan Tanzania Togo Tunisia Turkmenistan Uganda Uzbekistan Zambia Zimbabwe THE ASIAN INTEREST: CHINA, KOREA & JAPAN LINK TO AFRICA Size proportional to FDI Outflow Net FDI Outflow Countries
- 17. Algeria Angola Armenia Austria Belgium Benin Bosnia and Herzegovina Botswana Bulgaria Burkina Faso Burundi Côte d'Ivoire Cameroon CAR Chad Comoros Congo Congo, Democratic Republic of the Croatia Cyprus Czech Republic Denmark DjiboutiEgypt Equatorial Guinea Eritrea Ethiopia Finland France Gabon Gambia Germany Ghana Greece Guinea Guinea-Bissau Hungary Iceland Ireland Italy Kenya Lesotho Liberia Libya Luxembourg Macedonia Madagascar Malawi Mali Malta Mauritania Mauritius Morocco Mozambique Namibia Netherlands NigerNigeria Norway Poland Portugal Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Slovakia Slovenia Somalia South Africa Spain Sudan Swaziland Sweden Switzerland Tanzania Togo Tonga TunisiaTurkey Uganda UK Zambia Zimbabwe EUROPE IS DEEPLY INVESTED IN AFRICA Size proportional to FDI Outflow Net FDI Outflow Countries
- 18. AFRICA: FDI INFLOWS DEPEND ON RISK SCORE, NETWORK EFFICIENCY Angola Instability Size ~ GDP Network Efficiency FDIInflows$M
- 19. Albania Algeria Argentina Armenia Australia Austria Azerbaijan Bahrain Belarus Belgium Benin Bosnia and Herzegovina Botswana Bulgaria Burkina Faso Burundi Cameroon Canada CAR Chad China Comoros Congo, Democratic Republic of the Croatia Cyprus Czech Republic Denmark Djibouti Egypt Eritrea Ethiopia Finland France Gabon Germany Ghana Greece Guinea Hungary Iceland India Iran IraqItaly Japan Jordan Kazakhstan Kenya Korea, Dem. People's Rep. of Korea, Republic of Kuwait Latvia Lebanon Libya Malawi Malaysia Mali Malta Mauritania Mauritius Mongolia Morocco Mozambique Netherlands Niger Nigeria Oman Pakistan Palestine Poland Portugal Qatar Romania Russian Federation Rwanda Saudi Arabia Senegal Serbia Seychelles Sierra Leone Singapore Slovakia Slovenia Somalia South Africa Spain Sri Lanka Sudan Swaziland Sweden Switzerland Syria Thailand Togo Tunisia Turkey Turkmenistan UAE Uganda UK USA Uzbekistan Viet Nam Yemen Zambia Zimbabwe EGYPT: WELL NETWORKED = HIGH FDI FLOWS Governance Score -.7620 Risk Score (100) 28 FDI Inflow $ 4614 M Degree 106 Size proportional to FDI Inflow Net FDI Outflow Countries
- 20. BUT FDI INFLOW IS VIA A FEW COUNTRIES Size proportional to FDI Outflow Net FDI Outflow Countries Afghanistan Albania Algeria Angola Azerbaijan Bahrain Bangladesh Benin Botswana Brunei Darussalam Burkina Faso Burundi Cameroon Cape Verde CAR Chad Comoros Congo Congo, Democratic Republic of the Côte d'Ivoire Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Guyana Indonesia Iran IraqJordan Kazakhstan Kenya Kuwait Kyrgyzstan Lebanon Lesotho Liberia Libya Madagascar Malawi Malaysia Maldives Mali Mauritania Mauritius Morocco Mozambique Namibia Nepal NigerNigeria Palestine Oman Pakistan Qatar Rwanda Sao Tome and Principe Saudi Arabia Senegal Seychelles Sierra Leone Somalia South Africa Sudan Suriname Swaziland Syria Tajikistan Tanzania Togo Tunisia Turkey Turkmenistan Uganda UAE UzbekistanYemen Zambia Zimbabwe AU COMESA OIC League of Arab States Argentina Armenia Australia Austria Azerbaijan Belarus Belgium Benin Bosnia and Herzegovina Botswana Bulgaria Burkina Faso Burundi Canada CAR China Congo, Democratic Republic of the Côte d'Ivoire Croatia Cyprus Czech Republic Denmark Egypt Eritrea Finland France Germany Ghana Greece Hungary Iceland India Iran Iraq Italy Japan KenyaKorea, Dem. People's Rep. of Korea, Republic of Kuwait Latvia Malta Mongolia Netherlands Pakistan Poland Portugal Romania Russian Federation Rwanda Senegal Serbia Sierra Leone Singapore Slovakia Slovenia South Africa Spain Sri Lanka Sweden Switzerland Thailand Togo UK USA Viet Nam Multilateral Treaties… ….and Bilateral Treaties 72 Bilateral Treaties4 Multilateral Treaties Governance Score -.7620 Risk Score (100) 28 FDI Inflow $ 4614 M https://en.portal.santandertrade.com/establish-overseas/egypt/foreign-investment 85% FDI From 7 countries
- 21. Algeria Benin Burkina Faso Côte d'Ivoire Cameroon Cape Verde Chad China Comoros Djibouti Egypt Ethiopia Finland France Gabon Gambia Germany Ghana Guinea Guinea-Bissau Italy Korea, Republic of Kuwait Liberia Libya Mali Mauritania Mozambique Netherlands Niger Nigeria Romania Saudi Arabia Senegal Serbia Sierra Leone South Africa Sudan Sweden Switzerland Taiwan Togo Tunisia Turkey Uganda UK NIGERIA: SMALLER NETWORK WITH COUNTRIES THAT INVEST Governance Score -.9520 Risk Score (100) 28 FDI Inflow $ 5918 M Degree 45 Size proportional to FDI Outflow Net FDI Outflow Countries
- 22. NIGERIA: HIGHER FDI INFLOW VIA FEWER COUNTRIES Algeria Angola AU Benin Botswana Burkina Faso Burundi Côte d'Ivoire Cameroon Cape Verde CAR Chad Comoros Congo Congo, Democratic Republic of the Djibouti ECOWAS Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Malawi Mali Mauritania Morocco Mozambique Namibia Niger Nigeria OIC Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Suriname Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe China Finland France Germany Italy Korea, Republic of Netherlands Nigeria Romania Serbia Sweden Switzerland Taiwan UK Governance Score -.9520 Risk Score (100) 28 FDI Inflow $ 5918 M Degree 45 Net FDI Outflow CountriesSize proportional to FDI Outflow 14 Bilateral Treaties3 Multilateral Treaties Multilateral Treaties… ….and Bilateral Treaties United States But enjoys higher FDI Inflows because of oil 80% FDI From 3 countries
- 23. Algeria Angola Argentina China Congo Congo, Democratic Republic of the Cuba Czech Republic Egypt Equatorial Guinea Ethiopia Finland Gabon Germany Ghana Greece GuineaIran Italy Korea, Republic of Libya Mauritius Mozambique Nigeria Paraguay Russian Federation Rwanda South Africa Sweden Tunisia Uganda SOUTH AFRICA: CONNECTED TO FEWER INVESTORS BUT BETTER GOVERNANCE AND RISK SCORE Governance Score .265 Risk Score (100) 49 FDI Inflow $ 4713 M Degree 30 Size proportional to FDI Outflow Net FDI Outflow Countries
- 24. Algeria Angola Argentina China Congo Congo, Democratic Repub Cuba Czech Republic Egypt Equatorial Gu Ethiopia Finland Gabon Germany Ghana Greece Guinea Iran Italy Korea, Republic of Libya Mauritius Mozambique Nigeria Paraguay Russian Federation Rwanda South Africa Sweden Tunisia Uganda SOUTH AFRICA: 1 MULTILATERAL TREATY, FDI NOT DEPENDENT ON BILATERAL TREATIES Algeria Angola AU Benin Botswana Burkina Faso Burundi Côte d'Ivoire Cameroon Cape Verde CAR Chad Comoros Congo Congo, Democratic Republic of the Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Ghana Guinea Kenya Lesotho Liberia Libya Malawi Mauritania Mozambique Namibia NigerNigeria Rwanda Sao Tome and Principe Seychelles Sierra Leone South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe 28 Bilateral Treaties1 Multilateral Treaty Multilateral Treaties… ….and Bilateral Treaties Governance Score .265 Risk Score (100) 49 FDI Inflow $ 4713 M Includes 4 countries outside treaty network Size proportional to FDI Outflow United States Netherlands UK Japan 85% FDI from 6 countries Net FDI Outflow Countries
- 25. SIMILAR GDP, BUT KENYA GETS LOWER FDI INFLOWS VS ETHIOPIA Poor-quality infrastructure, lack of security due to terrorism and an unfavorable business climate in Kenya Burundi Comoros Djibouti Egypt Eritrea France Italy Kenya Korea, Republic of Kuwait Libya Malawi Mauritius Netherlands Rwanda Seychelles Sudan Swaziland Switzerland Tanzania Uganda UK Zambia Zimbabwe AlgeriaAustria China Denmark Egypt Equatorial Guinea Ethiopia Finland France Germany Iran Israel Italy Kuwait Libya Malaysia Netherlands Nigeria South Africa Sudan Sweden Switzerland Tunisia Turkey Yemen Degree 23 GDP 2014 $ 61 B Governance Score -0.285 Network Efficiency 3.1 Risk / Credit Score (100) 20 Degree 24 GDP 2014 $ 54 B Governance Score -0.641 Network Efficiency 5.1 Risk / Credit Score (100) 31 FDI Inflow: $ 1129 MFDI Inflow: $ 629 M Kenya Ethiopia
- 26. DO TRADE TREATIES RESULT IN HIGHER FDI INFLOWS FOR DEVELOPING COUNTRIES? What Affects FDI Inflows? Governance Score Sovereign Risk Treaties with FDI exporting countries Network Efficiency GDP A Combination of Factors What Does Not Affect FDI Inflows? Number of Treaties signed Participation in Multilateral Agreements
- 27. QUESTIONS? Contact Abraham Cherian: abrahamcherian72@gmail.com
- 28. APPENDICES
- 29. DATA REFERENCES The World Bank Governance Score: http://data.worldbank.org/data-catalog/worldwide-governance-indicators UNCTAD UNCTAD Website: http://unctadstat.unctad.org/wds/ReportFolders/reportFolders.aspx?sCS_ChosenLang=en FDI Mean Inflow: Average of countrywise FDI inflow data from 2010-14 (flows) in $ Mn FDI Mean Outflow: Average of countrywise FDI outflow data from 2010-14 (flows) in $ Mn FDI Dummy: +1 if net FDI receiver, -1 if net FDI Investor GDP 2014 in $ Bn TradingEconomics.com Credit Risk Score: http://www.tradingeconomics.com/country-list/rating
- 30. ADDITIONAL REFERENCES FDI Promotion through Bilateral Investment Treaties: More Than a Bit? - Matthias Busse, Jens Königer and Peter Nunnenkamp https://www.ifw-members.ifw-kiel.de/publications/fdi-promotion-through-bilateral-investment-treaties-more-than-a- bit/Kiel%20Working%20Paper%201403.pdf Does Joining International Treaties Attract Foreign Investment? Experimental Firm- Level Evidence http://www.columbia.edu/~ym2297/KenyonMargalit_March_2014.pdf A BIT IS BETTER THAN A LOT Bilateral Investment Treaties and Preferential Trade Agreements http://faculty.georgetown.edu/mlb66/BITs%20and%20PTAs.pdf An Anatomy of the World Trade Network (July 2013) http://www.hkeconomy.gov.hk/en/pdf/An%20Anatomy%20of%20the%20World%20Trade%20Network%20(July%202013).pdf Global Investment Trends Monitor - UNCTAD http://unctad.org/en/PublicationsLibrary/webdiaeia2016d1_en.pdf