An Empirical Research On BIT's Influence On China's Inward FDI

Countries all around the world with motive to attract,promote and protect Foreign Investments,have signed thousands of Bilateral Investment Treaties(BIT)in last three decades.But the influence of Bilateral Investment Treaties on Foreign Direct Investment(FDI)is still debatable.The concept of analyzing the heterogeneity of BITs have started only in recent years.OECD nations are the source of most of the World's Foreign Direct Investment and China has the second highest number of signed Bilateral Investment Treaties.It would be interesting to analyze the effect of heterogeneous BIT on China's Inward Foreign Direct Investment.We empirically study the effect of heterogeneous BIT on Foreign Direct Investment by analyzing the data from the year 2000 to 2016.We construct a BIT index using the most important eleven articles common in most of the Bilateral Investment Treaties.First we code the articles form each BIT signed between China and OECD nations.Then we use Principal Component Analysis to get our heterogeneous BIT index.We construct a Panel data sheet from our compiled data.Then using Random Effect regression,we get our results.For empirical analysis we use Gross Domestic Product,Distance between China and partner country,Openness,Inflation,Voice and Accountability,Government Effectiveness,Control of Corruption,Regulatory quality,Political Stability and Rule of Law as the variables.Inward FDI utilized by China is our dependent variable.The empirical result shows no significant correlation between heterogeneous BIT and China's Inward Foreign Direct Investment.However,complying with the gravity model,empirical results show positive correlation with economy size and openness,negatively with distance.It also shows positive correlation with Institutional Quality Indicator variables like Political Stability,Government Effectiveness.