ABSTRACT

This chapter provides an overview of how economists think about and measure foreign direct investment (FDI) and international investment agreements (IIAs). It examines the trends and patterns of FDI and IIAs. It discusses what determines the direction and magnitude of FDI and what role is played by IIAs, focusing on the evidence regarding how IIAs affect the direction and location of foreign investment. Finally, the chapter examines the nature and structure of IIAs as well as the impact of particular aspects of IIAs on foreign investment, with a special focus on investor–state dispute settlement (ISDS). Overall, the chapter addresses whether and how IIAs affect the pattern of FDI and examines the arguments regarding whether ISDS’s negative consequences outweigh the potential benefits.