The determinants of foreign direct investment in SADC countries: The role of bilateral investment treaties (1990-2013)

Abstract

The study empirically examines the determinants of foreign direct investment (FDI) in the Southern African Development Community (SADC) countries with special focus on the impact of Bilateral Investment Treaties (BITs) using annual data from 1990-2013. The study uses panel data for fourteen SADC countries and applies fixed effects panel methodology to examine the impact of both signing and ratifying BITs on FDI inflows into the region. Arguably, developing countries conclude these agreements in order to attract the muchn needed capital to their economies. Econometric results reveal that ratified BITs have positive impact on FDI inflows into the SADC region. Only signing BITs without operationalizing them does not promote FDI inflows into the region. The study recommends that policy makers in the SADC region should ratify the signed BITs within reasonable time frame to show their commitment in promoting FDI inflows in their respective countries. The results also suggest that policy makers should adhere to the provisions of these BITs to increase confidence in them among foreign investors and in the process minimize litigation in case of investor-state disputes arising.