Forget BIT: The Impact of RTA on FDI and Economic Growth – A Comparison of Brazil and Mexico

Meguerian-Faria, Rosa | March 1, 2021

This article explores the relationship between international trade law, foreign
direct investment (FDI), and economic growth of developing countries. Here, I
argue that a developing state needs to capture the right combination of the
different types of FDI to promote domestic growth. I apply principles of law,
economics, and finance to my analysis of the importance of Bilateral Investment
Treaties (BITs), compared to Regional Trade Agreements (RTAs) to FDI inflow,
and how it can impact economic growth in developing countries. I show that the
RTAs give a signal that the country is open to foreign investment, and therefore
it promotes FDI inflow more efficiently than BITs. Nevertheless, there are
different levels of states’ commitment to free trade, and to the RTA signed, which
does impact the kind of FDI received. I compare Brazil and Mexico’s FDI inflow
and national regulatory governance to illustrate my theory. Finally, I propose
that the goal of developing countries’ international trade policy should go further
than just the promotion of FDI inflow. It should focus on promoting the right
combination of the different types of FDI inflow that will promote long term
investment and stable economic growth.