Bilateral Investment Treaties and FDI: Does the Sector Matter?

This paper represents the first attempt to empirically study the heterogeneous effect that BITs may have across different sectors of investments. We analyze investments made in 13 countries in the former Soviet Union and Central and Eastern Europe, disaggregated over seven sectors. We indeed find the effect of BITs to differ considerably across sectors of investment. Using capital intensity as a proxy, we confirm that FDI in those sectors with higher sunk costs responds more strongly to the signing of BITs. Given the considerable differences in the development impact that can be expected from FDI in different sectors, it remains to be shown whether BITs are an effective tool to attract those types of investments that are most beneficial for the development of the host economy.