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

esult that emerges is that BITs has a significant positive <strong>impact</strong> on FDI inflows but it is BITs
with developed countries that has a significant influence
on aggregate FDI inflows. BITs with developing countries do not have a significant
<strong>impact</strong> on FDI inflow. There are two possible explanations for this result. First, since FDI
from developed countries comprises more than 60 percent <strong>of</strong> aggregate FDI therefore it is
possible that BITs with developing countries may not show significance. Second, it is
possible that determinants <strong>of</strong> FDI may differ between developed <strong>and</strong> developing countries
<strong>and</strong> issues with respect to treatment <strong>of</strong> foreign firms in the host countries may not be
important for FDI from developing countries. To test this further we now analyse the
determinants <strong>of</strong> FDI from developed <strong>and</strong> developing countries separately.
VI
Empirical Results: Determinants <strong>of</strong> FDI from Developed <strong>and</strong> Developing
Countries
To estimate the <strong>impact</strong> on FDI from developed <strong>and</strong> developing countries we use ten
years data on FDI approvals from developed <strong>and</strong> developing countries into developing
countries. However, we first examine whether determinants <strong>of</strong> FDI approvals differ from
determinants <strong>of</strong> actual FDI inflows.
Table 8 presents the determinants <strong>of</strong> actual <strong>and</strong> approved FDI. We find that growth in
the size <strong>of</strong> the host markets is a significant determinant <strong>of</strong> FDI at the stage when approvals
are being sought. It therefore acts as a signal <strong>of</strong> market potential to the foreign investors,
however, it is the existing size <strong>of</strong> the market not the potential growth that determines the
actual inflow <strong>of</strong> FDI. Cost <strong>of</strong> labour <strong>and</strong> electricity does not have a significant <strong>impact</strong> on FDI
approvals though better transport <strong>and</strong> communication play a more significant role in
attracting FDI approvals. This indicates that seeking approvals for undertaking <strong>investment</strong>s
i.e., in the first stage <strong>of</strong> undertaking <strong>investment</strong>s it is the cost <strong>of</strong> transport <strong>and</strong> communication
that influences cross country location <strong>of</strong> FDI, however in the second stage, when actual
<strong>investment</strong>s are undertaken what influences more is the costs <strong>of</strong> labour <strong>and</strong> energy
availability. With respect to all other variables we find that the determinants <strong>of</strong> actual <strong>and</strong>
approved FDI to have a similar <strong>impact</strong>. Impact <strong>of</strong> Tariff rates on FDI inflows loses
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