| London Economics and Ipsos were commissioned by the Department for Business and Trade to investigate the impact of international investment agreements (IIAs) on UK outward direct investment (ODI).
ODI is cross-border investment from one country into another, with the aim of establishing a lasting interest in an enterprise where the investor’s purpose is to play a significant role in the management of the enterprise. IIAs are a type of treaty between countries that address investments between those countries. IIAs can cover both investment chapters in free trade agreements (FTAs) or bilateral investment treaties (BITs). While BITs generally include investment protections and a related enforcement mechanism, investment chapters can also include market access provisions.
Headline findings
- The impact of BITs on UK ODI is estimated to be on average £1.88bn, which indicates they play a key role in promoting UK ODI. This estimate uses data from 2000 to 2020, inclusive.
- This is the equivalent to a 14.4% increase in UK ODI for the average country.
- The impact of BITs on UK ODI differs across countries. For example, it is larger in countries with a smaller GDP.
- BITs do not have an immediate impact, with significant increases in UK ODI from five years after the ratification of the IIA. The impact up to five years is not significantly different from zero, but rises to between £2.5bn and £3.6bn in the following twenty years.
- However, almost all of the 20 small and medium businesses interviewed were not aware of IIAs or their benefits.
- When making investment decisions, businesses suggested other factors (such as market potential, bureaucracy, regulatory environment, cultural fit, and language) were more important.
- Businesses acknowledged that IIAs can indicate a signatory host country was a hospitable environment for overseas investments. Consequently, IIAs have the potential to increase their openness to invest in less developed markets or countries they perceived to be riskier.
- Businesses believed they would be more able to derive benefits from IIAs if they understood them better.
- There are some variations in the summary findings of the econometric analysis and the qualitative research. The reasons for this are likely to be primarily because the businesses observed were different in terms of investment location and the sizes of businesses – the qualitative research focused on SMEs rather than large firms.
The full report can be found here. |
