The Effects of Investment Treaties and Trade Agreements on FDI: The Case of Serbia

ABSTRACT

This study explores the effects of Bilateral Investment Treaties (BIT) and Regional Trade Agreements (RTA) on foreign direct investment (FDI) inflows into Serbia, utilizing panel data for 2010–2021. The results indicate that both BIT and RTA independently exert positive impacts on Serbia’s inward FDI. Also, the interaction effects between BIT and RTA dummies and export/import variables on inward FDI are positive. This suggests that the implementation of BITs and/or RTAs fosters a complementary relationship between trade and FDI in Serbia as the predominant type of FDIs from partner states with which Serbia shares BITs and/or RTAs is vertical and export-platform rather than horizontal.

KEYWORDS:

• Bilateral investment treaty
• foreign direct investment
• regional trade agreement
• Serbian economy
• transition economy

JEL CLASSIFICATION:

• F14
• F21
• P25

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. The UNCTAD data during 1992–2007 is for Serbia and Montenegro, while during 2008–2021 is for Serbia.

2. Average of the six World Governance Indicators (WGI) indices announced by the World Bank: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. The similar measure of taking the average of WGI indices is employed in Easterly and Levine (2003), Al‐Marhubi (2004), and Lee et al. (2022).

3. Distance between capital cities.

4. List of ISO codes of countries used in the empirical analysis: AFG, ALB, AND, ARM, ATG, AZE, BFA, BHR, BHS, BIH, BLR, BLZ, BMU, BOL, BRB, BRN, BTN, BWA, COD, COG, CUB, CYM, CZE, DMA, EST, ETH, GAB, GEO, GHA, GMB, GNB, GNQ, GRD, GUY, HND, ISL, JAM, JOR, KGZ, KNA, LBN, LBR, LBY, LTU, LVA, MDA, MHL, MKD, MLT, MNE, MNG, MRT, MUS, MWI, NAM, NER, PAN, PRY, RWA, SLB, SLE, SOM, SUR, SVN, SYC, SYR, TCD, TKM, TUN, VCT, VIR, ZMB, ZWE.

5. Used USD-EUR exchange rates provided by OECD Data.

6. East Asia & Pacific, Europe & Central Asia, Latin America & Caribbean, Middle East & North Africa, North America, South Asia, and Sub-Saharan Africa

7. Conventionally, VIF > 10 implies a serious collinearity (Menard 2001). In our model, variance inflation factor (VIF) values for non-interacted variables of all OLS models are all less than 10, which indicates no concern of multicollinearity.

Additional information

Notes on contributors

Han-Sol Lee

Han-Sol Lee is a senior lecturer at the Marketing Department of Peoples’ Friendship University of Russia (RUDN University), with expertise in FDI, economic cooperation of South Korea-Russia, Russian Far East, post-communist economies, Russia, and EAEU.

Nikolay Nenovsky

Nikolay Nenovsky is a professor of economics at the University of Picardie Jules Verne, and a member of the Governing Council of the Bulgarian Central Bank. His fields of expertise include monetary theory and policy, monetary history, and history of economic thought.

Woosik Yu

Woosik Yu is an assistant professor at the Department of Economics, KIMEP University, with expertise in international trade and economic development.