International Investment Agreements Provisions and Foreign Direct Investment Flows in the Regional Comprehensive Economic Partnership Region

Abstract

The international investment agreements (IIAs) are a strategic policy instrument that member countries could use to achieve win-win cooperation. Meanwhile, the extension of the Association of Southeast Asian Nations (ASEAN) membership toward the Regional Comprehensive Economic Partnership (RCEP) membership has induced the rich and deep investment agreement that challenges the ASEAN countries to take advantage. This study demonstrates the effects of investment provisions in international investment agreements on the bilateral foreign direct investment (FDI) in the RCEP economies. It also investigates the effect of ASEAN membership on investment creation and investment diversion toward the RCEP region. Using panel data on RCEP countries during the period 2009 to 2018 and a Driscoll-Kraay standard errors estimator, the results show that the re-lationship between inward FDI and investment provisions in IIAs are positive and significant. Likewise, the investment protection, and promotion provisions in bilateral investment treaties have positive and significant effects on the inward FDI. Moreover, the findings indicate that the ASEAN membership tends to cause the investment creation toward the RCEP region; and it is a stepping stone on the road to the investment policy framework for sustainable development.