concluding bilateral investment agreements with all source countries would raise a host country’s share of FDI by nearly 25 percent. Egger and Merlo (2012), using data on the foreign activity of German multinational firms, find that signing and ratifying bilateral investment agreements raises the number of firms in the average host country and year by 26 plants. The FDI generated by signing and ratifying a bilateral agreement is about €5 million per firm and, hence, €130 million per host country in a year.

Colen, Persyn, and Guariso (2014) analyze the heterogeneous effects of bilateral investment agreements across sectors. They use FDI stocks for 13 countries in the former Soviet Union and Central and Eastern Europe. They find that one additional bilateral agreement increases FDI stock by 1‐2 percent. However, their results show large differences across sectors: for instance, bilateral investment agreements appear particularly successful in the utilities and real estate sectors, and to a lesser extent in banking and mining. By contrast, no significant effect is found in manufacturing and services. Given the limited development effects in the most affected sectors, the authors suggest further examination of sector effects and policies that could better stimulate economic development.

The status of IIAs also seems to matter. Haftel (2010) uses a comprehensive dataset on U.S. investment in developing countries and finds that only ratified bilateral agreements have a statistically significant effect on FDI. The study suggests that credible commitments subsume signaling and render signaling redundant. A jointly ratified bilateral investment agreement increases U.S. foreign investment in host countries from 0.07 to 0.24 percent of GDP. In contrast, signed bilateral agreements that are not in force fail to increase FDI flows.

New evidence shows the importance of specific investment provisions included in international investment agreements. Berger, Nunnenkamp, and Roy (2013) examine FDI flows for a large sample of developing countries in the years 1978–2004. They find that FDI reacts most positively to liberal admission rules, particularly national treatment provisions in the pre‐establishment phase. Investor‐state dispute settlement provisions appear to play a minor role. However, the authors note that this may be because of the smaller treaty sample and shorter timespan available for analyzing investor‐state dispute settlement effects.

A comparison of bilateral investment and preferential trade agreements finds that the inclusion of investment provisions in preferential trade agreements can magnify effects on FDI. Buthe and Milner (2014) analyze FDI in 122 developing countries over the years 1971‐2007. They find that more FDI is induced by ratified preferential trade agreements, which make commitments binding and more credible. Institutional differences also matter: for instance, preferential trade agreements with investment clauses or dispute settlement mechanisms lead to more FDI than those without such provisions. Furthermore, agreements with stricter clauses lead to even more investment.

Berger and others (2013) find that failing to include investment provisions in preferential trade agreements might not affect FDI, or even discourage it. Lesher and Miroudot (2006) find that, on their own, bilateral investment treaties do not affect investment flows. However, they show that investment provisions in preferential trade agreements are positively associated with trade and, to an even greater extent, FDI. Specifically, the existence of investment provisions in preferential trade agreements is 23