impact of government policies and investment agreements on fdi ...

international FDI policy works at the international level <strong>and</strong> deals with <strong>agreements</strong> on the
issue <strong>of</strong> treatment <strong>of</strong> FDI from a particular partner or region. These <strong>investment</strong>
<strong>agreements</strong> may ensure FDI from a particular partner or from a particular region
treatment under “most- favoured nation st<strong>and</strong>ard” <strong>and</strong> “national treatment st<strong>and</strong>ard”.
Based on their susceptibility to change, the three categories <strong>of</strong> <strong>policies</strong> may
<strong>impact</strong> FDI over different time periods. While overall economic <strong>policies</strong> may take a long
time to change the economic conditions <strong>of</strong> the country e.g., market size, national FDI
policy like fiscal incentives <strong>of</strong>fered may have a more immediate effect. Signing <strong>of</strong>
<strong>investment</strong> <strong>agreements</strong> to encourage FDI flows from a particular country or from within a
region may have an <strong>impact</strong> both in the short-run as well as in the medium run. The focus
<strong>of</strong> the study is on the national <strong>and</strong> the international FDI policy <strong>of</strong> the host <strong>government</strong>s in
the developing countries after controlling for the economic fundamentals as alternative
explanations. The model formulated for this purpose is as follows:
FDI = f [(Overall Economic Policy), (National FDI Policy, e.g., Tariff Policy, FDI
Incentives <strong>and</strong> Removal <strong>of</strong> Restrictions on FDI), (International FDI Policy e.g., Bilateral
Investment Agreements dgc, Bilateral Investment Agreements dc, <strong>and</strong> Regional Investment
Agreements) }
where dgc st<strong>and</strong>s for developing countries <strong>and</strong> dc for developed countries i.e., (Bilateral
Investment Agreements) dgc
st<strong>and</strong>s for bilateral <strong>investment</strong> agreement with developing
countries. The model is estimated for the period 1980-81 to 1999-2000. Impact <strong>of</strong> economic
fundamentals is estimated with a lag <strong>of</strong> one period to avoid simultaneity with the dependent
variable. A similar model is estimated for FDI from developed countries <strong>and</strong> FDI from
developing countries for the period 1986-87 to 1996-97 based on FDI approvals. The <strong>impact</strong>
<strong>of</strong> two regional <strong>investment</strong> <strong>agreements</strong> is examined, i.e., agreement reached among the
APEC members, i.e., non-binding <strong>investment</strong> principles (NBIP) <strong>and</strong> <strong>investment</strong> area
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