Bruce A. Blonigen and Ronald B. Davies
- Published in print:
- 2009
- Published Online:
- May 2009
- ISBN:
- 9780195388534
- eISBN:
- 9780199855322
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195388534.003.0017
- Subject:
- Law, Public International Law
This chapter provides some evidence on the effect of bilateral tax treaties on foreign direct investment (FDI) activity. Using Organization for Economic Cooperation and Development's (OECD) data, it ...
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This chapter provides some evidence on the effect of bilateral tax treaties on foreign direct investment (FDI) activity. Using Organization for Economic Cooperation and Development's (OECD) data, it shows that new treaty activity (during the 1983–1992 period) suggests strong negative impacts on FDI. Despite the positive correlation in the case of much older treaties, this evidence cannot be weighed heavily since FDI activity before these treaties were in place cannot be observed. The results are consistent with previous work by Blonigen and Davies (2001) using only U.S. data. Thus, in conjunction with this earlier work, the results cast doubt upon the FDI promotion rationale for treaty formation, which stands in contrast to the conventional wisdom among many economists and lawyers.Less
This chapter provides some evidence on the effect of bilateral tax treaties on foreign direct investment (FDI) activity. Using Organization for Economic Cooperation and Development's (OECD) data, it shows that new treaty activity (during the 1983–1992 period) suggests strong negative impacts on FDI. Despite the positive correlation in the case of much older treaties, this evidence cannot be weighed heavily since FDI activity before these treaties were in place cannot be observed. The results are consistent with previous work by Blonigen and Davies (2001) using only U.S. data. Thus, in conjunction with this earlier work, the results cast doubt upon the FDI promotion rationale for treaty formation, which stands in contrast to the conventional wisdom among many economists and lawyers.
Henry J. Louie and Donald J. Rousslang
- Published in print:
- 2009
- Published Online:
- May 2009
- ISBN:
- 9780195388534
- eISBN:
- 9780199855322
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195388534.003.0020
- Subject:
- Law, Public International Law
This chapter takes a different approach from earlier studies to determine how host-country governance affects U.S. foreign direct investment (FDI). Instead of looking at the effect on the amount of ...
More
This chapter takes a different approach from earlier studies to determine how host-country governance affects U.S. foreign direct investment (FDI). Instead of looking at the effect on the amount of investment, it looks at the effect on the rates of return that companies require on their FDI. It shows that poor host-country governance, as indicated by indexes measuring corruption or political instability, causes U.S. companies to require a significantly higher rate of return on their FDI. There is no evidence that a bilateral income tax treaty with the United States reduces the required rates of return to U.S. FDI. This finding is consistent with theoretical predictions, particularly those of Sinn (1991, 1993), and with the conclusions reached by Blonigen and Davies (2001). Failing to include a variable for the quality of host-country governance can cause a simple cross-section regression to yield the misleading implication that a tax treaty encourages U.S. FDI.Less
This chapter takes a different approach from earlier studies to determine how host-country governance affects U.S. foreign direct investment (FDI). Instead of looking at the effect on the amount of investment, it looks at the effect on the rates of return that companies require on their FDI. It shows that poor host-country governance, as indicated by indexes measuring corruption or political instability, causes U.S. companies to require a significantly higher rate of return on their FDI. There is no evidence that a bilateral income tax treaty with the United States reduces the required rates of return to U.S. FDI. This finding is consistent with theoretical predictions, particularly those of Sinn (1991, 1993), and with the conclusions reached by Blonigen and Davies (2001). Failing to include a variable for the quality of host-country governance can cause a simple cross-section regression to yield the misleading implication that a tax treaty encourages U.S. FDI.
