International investment agreements (IIAs) are widely viewed as protecting, and hence facilitating foreign direct investment (FDI). Our analysis departs from the literature in examining IIA effectiveness by explicitly asking whether IIAs protect FDI. We ask whether firms pay more to acquire an IIA protected asset – due to the larger expected future returns from it – as compared to similar but unprotected assets. Focusing on asset transaction level data, we are also able to determine the mechanisms by which IIAs are expected to work – by imposing ex-ante signaling cost and ex-post commitment costs. Using detailed micro-level data on petroleum reserve purchases in 52 countries, we find a weak significant effect of IIAs on the amount that investors pay for an asset. Our analysis also indicates that ex-ante signaling costs are relatively weak, while ex-post commitment costs are significant.
JANDHYALA, S. and WEINER, R.J. (2014). Do International Investment Agreements Protect Investment? Micro-Level Evidence. In: Best Paper Proceedings: 2014 Academy of Management Annual Meeting. Academy of Management.