China’s Investment Treaties with Latin America and Implications for South-South Cooperation: Evidence from Firm-Level Data

Abstract

Policymakers and analysts frame China’s growing investment in Latin America and the Caribbean as new forms of South-South cooperation. This study situates China’s investment treaties with Latin America in the context of South-South cooperation and measures their relative effects on China’s foreign direct investment (FDI) in the region. Macro-level econometric studies on the relationship between investment treaties and FDI are inconclusive due to methodological limitations, notably, studies must account for qualitative distinctions between political and economic conditions, bilateral relations, the strength of investor rights, and the sector of FDI flows. Based on China’s unique institutional characteristics, I use firm-level data and separate econometric models for public and private firms to measure the effect of China’s investment treaties on China’s Outward Foreign Direct Investment (OFDI). I find that China’s investment treaties with Latin America do not promote China’s OFDI to the region. I conclude that for China-Latin America investment treaties to become instruments of South-South cooperation they must include commitments to bilateral and regional investment institutions. Keywords in this article include investment treaties, investment and development, South-South Cooperation, bilateral investment treaties, international political economy, trade and industrial policy.