The role of bilateral investment treaties in promoting the internationalization of enterprises in Serbia

Abstract

Bilateral investment treaties are traditionally considered to be an instrument for attracting foreign direct investment in Serbia. However, their provisions may also support the internationalization of its enterprises. In this paper, we explore how effective bilateral investment treaties are in promoting the most challenging aspect of the internationalization of enterprises in Serbia -foreign direct investment outflows. Additionally, we investigate the role of other main motivations for the investment outflows. We conduct our analysis by estimating a gravity model using the panel data on Serbia and its 147 partner economies, observed in the period between 2011 and 2019. The gravity model was estimated using the Poisson pseudo-maximum likelihood estimator. We find that bilateral investment treaties have a statistically significant positive effect on bilateral foreign direct investment outflows. Furthermore, the outflows are particularly affected by the treaties containing higher anti-discrimination standards and providing a more liberal investment regime. Unilateral liberalization of the host countries' investment regime is also found to be positively associated with the investment outflows, whereas both the geographic and psychic distances have negative effects. Market-seeking motives of the internationalizing enterprises in Serbia are revealed to be the dominant driver of the investment. The results provide useful implications for the policymakers aiming to support the internationalizing efforts of the enterprises and the consequent improvement of the international competitiveness of Serbian economy.