INSIDE GLOBAL ISSUES
Working Paper No. 201515
The Impact of BITs and DTTs on FDI Inflow
and Outflow: Evidence from China
Hejing Chen, Li Chunding, John Whalley
Abstract: This paper examines the impact of both China’s bilateral investment treaties (BITs) and double tax treaties (DTTs) simultaneously on China’s bilateral Foreign Direct Investment (FDI) inflows and outflows. Using China bilateral FDI flow data from 1985 to 2010, we find that the cumulative number of bilateral investment treaties (BITs) China signed has a positive (though not always statistically significant) but minor impact on both China’s FDI inflows and outflows. The effect of a dummy BIT using dyadic data is always significant and positive for China’s FDI inflows, while negative but not always significant for China’s FDI outflows. We also find evidence that the cumulative number of double tax treaties (DTTs) tends to promote China’s FDI inflows and outflows in most equations with weighted cumulative BITs. However, tax treaty dummies do not reveal any robust effect on FDI flow. Generally, BITs and DTTs are more inclined to affect China’s FDI inflows than to affect China’s FDI outflows.
Keywords: Bilateral Investment Treaties; Double Tax Treaties; Foreign Direct nvestment; China
1. Introduction
China has been one of the largest recipients for global foreign direct investment (FDI) since the 21th new century. Annual realized FDI inflows have grown from 1.9 billion US dollars in 1985 to 118.7 billion US dollars in 2013 (see Figure 1). By 2013, China had accumulated a FDI stock of US$ 1.344 trillion , well ahead of other large developing and transition economies such as Brazil, India, and Russia. Meanwhile, China’s FDI outflows have taken off as a result of the government’s adoption and promotion of a “go global” policy aimed at establishing the country’s investors as international players following China’s entry to the WTO in 2001. Although China’s outward direct investment (ODI) stock is still small relative to the inward FDI stock, growth in China’s outward FDI flows has become significant in recent years, growing from less than $100 million in the 1980s to $107.84 billion in 2013 (see Figure 1), and the cumulative FDI abroad (stock) had reached $660.48 billion by the end of 2013 , making China the fifth largest originator of ODI by value.
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2. Background: BITs, DTTs and FDI
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3. Research Design
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4. Empirical Results
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5. Conclusions
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