Are Bilateral Investment Treaties and Development Aid Home Government Policy Substitutes for Promoting Fdi Activities?
Abstract: Japanese development aid disbursements and bilateral investment treaty (BIT) ratification behavior are considered as two alternative foreign economic policy devices supporting Japanese businesses abroad. It is hypothesized that they replace each other in their capacity to promote Japanese foreign direct investment (FDI) activities in developing and emerging economies. To verify the hypothesis I use Toyo Keizai data on the investment activities of Japanese firms abroad grouped to an industry-country-year panel for the period 1990-2004. The results show that both BITs and foreign aid exert a positive influence on Japanese affiliate employment, but BITs only robustly in reduced sample specifications. There is robust evidence that the capacity of a BIT to act as an investment safeguard is lower when foreign aid is high and vice versa.
