The Economics of a Multilateral Investment Agreement

24 Pages Posted: 16 Mar 2009

See all articles by Jiahua Che

Jiahua Che

affiliation not provided to SSRN

Gerald Willmann

Bielefeld University; IfW Kiel; KU Leuven; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2009

Abstract

This paper models a multilateral agreement on investment (MAI) as a coordination device. Multinational enterprises can invest in any number of countries. Without a multilateral investment agreement, expropriation triggers an investment stop by the single MNE. Under a multilateral agreement, expropriation leads to a joint reaction by all MNEs. Switching to such a regime increases worldwide FDI and raises the world interest rate. Distinguishing three groups of countries, we show that industrialized countries experience an outflow of capital but benefit overall due to an increase in repatriated profits. Middle income countries are likely to gain from increased inward FDI, whereas least developed countries lose because they receive less FDI. Our results explain the stylized fact that a multilateral investment agreement was opposed by least developed nations and certain groups in rich countries.

Keywords: multilateral investment agreement, FDI, trade policy

JEL Classification: F13, F21, F23

Suggested Citation

Che, Jiahua and Willmann, Gerald, The Economics of a Multilateral Investment Agreement (February 2009). Available at SSRN: https://ssrn.com/abstract=1360647 or http://dx.doi.org/10.2139/ssrn.1360647

Jiahua Che

affiliation not provided to SSRN ( email )

Gerald Willmann (Contact Author)

Bielefeld University ( email )

Universitätsstraße 25
Bielefeld, NRW 33613
Germany

IfW Kiel ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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