associated with 19 percent more exports and 35‐45 percent more FDI flows. Though the study does not address potential endogeneity, it offers one of the most comprehensive analyses of investment provisions in preferential trade agreements.

Survey evidence by Gómez‐Mera and others (2015) suggests that international economic agreements can facilitate cross‐border investments. The authors find that 70 percent of investors from emerging economies primarily seek new markets. At the same time, they are deterred by physical and cultural distance between markets, a force particularly important for the services sector where a significant number of investors demonstrates high sensitivity to distance. For example, in the case of Brazil, authors find that investment sensitivity to distance for the services sectors is almost 80 percent greater than for manufacturers. Brazilian, but also South African investors are therefore more prone to invest within their prospective regions. This is in contrast to Indian and Korean investors who are more internationalized.

Experimental data drawn from the survey suggests that firms prefer to invest in countries that are members to trade and investment agreements because they allow them to benefit from lower barriers of access to other countries’ markets and to export back to the home country. Bilateral investment treaties partly offset the costs associated with investing in distance or unfamiliar markets by contributing to regulatory clarity and stability. Trade agreements, in turn, increase the perceived attractiveness of a host country by providing firms with opportunities to access new markets and reduce the costs of trade. The authors conclude that the market‐enhancing effects of these agreements appear to be more important than the signaling effects, or the commitment of governments to avoid predatory behavior.

Recent work by Paniagua and Myburgh (forthcoming) finds that the adoption of the New York International Convention on the Recognition and Enforcement of Foreign Arbitral Awards has a positive effect on net FDI inflows due to its role in enabling effective contract enforcement. The authors suggest that host countries that adopt the convention increase their FDI inflows by an average of 40 percent. The effects are larger for the size of investment than for their number. Indeed, for larger investments, the impact is twice that for smaller investments, as well as for countries with weaker institutions. In this regard, improving the quality of international commercial arbitration could also help multinational enterprises to expand through contracts with local partners and suppliers—a highly relevant consideration for global value chains.

These studies lead to several insights into research and policy. First, IIAs, if ratified, may increase FDI to participating countries. Second, certain investment provisions, particularly those ensuring market access to investors, are crucial. Third, the effects seem to vary by sector. However, future research should examine the dynamics—including in the context of global value chains. Fourth, including investment provisions in trade agreements can magnify the effects of such treaties, but the effectiveness of certain provisions—such as of the investor‐state dispute settlement—requires further research. Finally, with the dramatic recent rise in investor‐state disputes over international investment agreements (UNCTAD 2014), completely new research is needed on alternative investor‐state dispute resolution policies and mechanisms. Such mechanisms have already produced positive results in several countries—most notably in the Republic of Korea— and could significantly affect both FDI attraction and retention. They could also 24