The Miderating Effect of Bilateral Investment Treaty Stringency on the Relationship between Political Instability and Subsidiary Ownership

Subject Areas : International Finance

mostafa heidari haratemeh ¹

1 - Department of Economics and Management, Naragh Branch, Islamic Azad University, Naragh, Iran

Received: 2021-07-23 Accepted : 2022-02-20 Published : 2022-02-20

Keywords: Foreign Direct Investment, political instability, BIT stringency, Bilateral Investment Treaty, Subsidiary Ownership,

Abstract :

Developed industrialized countries use bilateral investment treaties to protect the rights of companies when investing in uncertain markets but developing and emerging countries are concluding BITs to attract more foreign direct investment and compete for a larger share of FDI. a range of developing and newly industrialized countries with a sample of 156 in a 15-year period from 2004 to 2019 with an average of 3 new foreign investments per year were selected and analyzed using binary logistic regression. The results showed: a) The effect of political instability variables and BIT stringency is not significant in non-interactively, but interactively with increasing political instability, BITs reverse the priorities of MNEs to choose majority ownership over minority ownership. b) At higher levels of political instability, greater BIT stringency increases the likelihood of increasing MNE selection from stocks. C) The stringency of BIT acts to moderate the relationship between political instability and the choice of sub-ownership in host countries. And more stringent BIT, as political instability increases, encourages the MNE to choose majority ownership over minority. Thus, more stringent bilateral investment treaties encourage multinational corporations to choose majority stocks as political instability increases.

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