offset these benefits, as the distance between two countries grows. Distance thus erodes part of the trade cost savings associated with PTAs. Thus, in the context of vertical FDI, we would expect the relevance of PTAs for investors to fade with distance between the firm’s country of origin and the potential destination.<sup>2</sup> We test these hypotheses using data from an original survey of firm-level data from four emerging economies: Brazil, India, South Africa, and the Republic of Korea. Consistent with our expectations, we find, first, that controlling for distance and market size, the existence of a BIT between a firm’s country of origin of and a potential market is associated with a greater number of investments in that country. But in addition, the effect of the BIT increases with distance between members. In other words, investors pay greater attention to the signals provided by BITs when considering whether to invest or not in more distant countries. The positive interaction effect between BIT and distance also suggests that these agreements work to offset part of the larger costs typically associated with distance, such as informational asymmetries and higher transaction costs. In addition, our results show that while PTAs are also associated with more investment, their effects appear to decrease the further away members are from each other. These results also hold when controlling for different aspects of institutional quality and political risk.

The analysis in this paper has implications for several scholarly and policy debates on the role of international economic agreements for cross-border investment decisions, at a time in which that role appears to be under scrutiny among key players in the world economy. Indeed, increased scrutiny has come both from the academic and policy fronts. In a blogpost published in 2008 and entitled “Some investors are more equal than others,” Dani Rodrik suggests that BITs give an advantage to foreign relative to domestic investors. In addition, it is argued that arbitration panels such as the International Center for the Settlement of Investment Disputes (ICSID) tend to operate ‘secretively’ and quickly.<sup>3</sup> Recent political developments have also shown skepticism with respect to the benefits of these types of agreements among politicians and their constituents. A top-down example is the withdrawal of the USA from the Trans-Pacific Partnership (TPP) negotiations early in 2017. A bottom-up example is the Brexit vote in 2016 signaling – among many other things - an appetite for keeping certain decisions at home rather than empowering supranational agencies for those purposes.

Our contribution thus lies in exploring the ways in which distance—geographic and cultural – affects the effectiveness of these international commitments in attracting foreign investment. At the same time, we contribute to the economics literature on the determinants of FDI by showing how states can use specific policies – such as joining trade and investment agreements—to offset the cost of investing in faraway destinations. BITs reduce the transaction and information costs associated with investing abroad. Finally, we contribute to the literature on emerging market multinationals, which has focused primarily on economic considerations and has paid less attention to the ways in which host governments can use policy choices to increase their attractiveness to potential foreign investors.

The paper is structured as follows. In the next section, we review the relevant literatures, on EMNEs, distance, and international economic agreements and FDI. We then present our arguments and hypotheses.

> 2 PTAs allow investors to import lower-cost inputs from and to export finished goods back to their home countries. Yet, increasing transport costs will offset these benefits, as the distance between two countries grows. If PTAs are primarily valued for their tradeenhancing benefits, as the results of our survey suggest, their relevance to investors should fade with distance.

> 3 The argument is that these are ad hoc panels convened by practicing lawyers rather than a regularly sitting court with permanent judges. In addition, there is no formal appeals process. This, according to many, defeats the whole object of providing swift and binding decisions.

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