The Relationship Between Double Taxation Treaties and Foreign Direct Investment

This paper explores the question whether entering into double tax treaties leads to more foreign investment. The topic has been the subject of a number of studies that have generated inconsistent results. The paper reviews previous studies and notes the limitations that may have affected their results. It reports on a comprehensive regression analysis survey that drew upon a far larger data set and considered more independent variables than previous studies. The study found that the strong correlation between entering into double tax treaties and attracting more foreign direct investment is stronger than the relationship with most other independent variables. It considers, however, whether there may be other exogenous factors that can explain both the increase in treaties and in foreign direct investment