Highlights
International investment agreements (IIAs) are a key instrument in the strategies of most countries, in particular developing countries, to attract foreign investment. Accordingly, policymakers need to know what role these treaties actually play and to what extent they can contribute to receiving more investment from abroad. Equally important is the question of whether the impact of IIAs on investment inflows also depends on the specific type of investment treaty concluded. A better understanding can help prepare the ground for more effective systemic host country policies that give IIAs their proper place in an overall strategy of attracting foreign investment and making it work for development.
The paper starts with a brief summary of the main host country determinants for foreign direct investment (FDI). They consist of:
1. the general policy framework for foreign investment, including economic, political and social stability, and the legislation affecting foreign investment;
2. economic determinants, such as the market size, cost of resources and other inputs (e.g. costs of labour) or the availability of natural resources; and
3. business facilitation, such as investment promotion including investment incentives.
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