Bilateral Investment Treaties and International Integration

This paper studies how bilateral investment treaties (BITs) affect the trade integration between partner countries. While the overall results from the full sample show that BIT signing is associated with an increase in overall imports that is generally smaller than the effect of WTO membership, BIT signing is found to have a considerable effect on capital goods imports and on imports of differentiated goods that exceeds the liberalization effects of WTO membership. In addition, BITs effects are found to be especially strong for low income countries, who are the most likely to benefit from the strengthening of investment protections. Thus, the results suggest BITs foster international integration through channels that are mediated by multinational firms. Contact Information: Department of Economics, One Shields Avenue, University of California, Davis, CA 95616. E-mail: [email protected]. (530) 752-1569.