particularly important for developing countries, where about half of FDI earnings remain as reinvestments (UNCTAD 2013).

Political risk also affects investments from emerging markets. In a survey of 713 investors, potential investors and non‐investors from Brazil, India, South Africa, and Korea, Gómez‐Mera and others (2015) find that while only 4.8 percent of investors identified political risk as a top investment consideration, potential investors and non‐investors are clearly not indifferent to it as these numbers increased to 8.6 and 16.4 percent respectively. Almost half of non‐investors ranked political risk as one of the two main location factors considered in investment decisions. Political stability and transparency are far more important than concerns about elections, corruption control and other business environment factors— emphasizing investors’ strong preference for predictability and certainty in regulations. Interestingly, the survey also shows that more export‐oriented companies, and those from India and Korea, are more risk‐ averse. This is to be expected considering that these firms are often part of international production networks and are subject to greater costs of unexpected regulatory changes disrupting just‐in‐time business processes.

Governments alleviate political risk in different ways. International Investment Agreements (IIAs) have been studied the most and are the focus of this paper. To the extent that international investment agreements protect investors against some key political risks— such as expropriation— and typically provide for _de jure_ enforcement of these provisions, they are considered mitigation instruments for political risk. IIAs, a category that comprises both bilateral investment agreements and preferential trade agreements with investment provisions,<sup>4</sup> are also becoming more common, reaching about 3,240 in 2013 (UNCTAD 2014).<sup>5</sup>

# _a. International Investment Agreements_

Abundant evidence has accumulated regarding the effects of IIAs in recent years. Sauvant and Sachs (2009) compiled a list of studies investigating the effectiveness of bilateral investment agreements in attracting investment and found very different conclusions. For example, Yackee (2009) considers such agreements signed between the top 18 FDI outflow countries and the rest of the world, and finds that the agreements do not affect receipts of FDI. The author finds that many factors could explain the mixed evidence, including endogeneity issues. For example, do IIAs increase FDI, or are they signed because of existing inflows? Other possible factors include differences in the type and strength of investment provisions, problems in disentangling effects relative to other liberalization reforms, and data quality and availability for larger samples.

> 4 Key investor protection guarantees include: protection against expropriation, fair and equitable treatment, most‐ favored‐nation treatment and national treatment, dispute resolution, and guarantees on free conversion and transfer of currency and capital.

> 5 While this is a positive sign of continued interest in FDI attraction agendas, scholars also point out that the multiple disciplines covered by international investment agreements bring coordination, transparency, and governance challenges to investors and policymakers. See WEF (2013) for a discussion of this topic.

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