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Political Risk Guarantees and Capital Flows: The Role of Bilateral Investment Treaties

Mina, Wasseem (2013): Political Risk Guarantees and Capital Flows: The Role of Bilateral Investment Treaties.

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Abstract

This paper examines the influence of political risk guarantees of bilateral investment treaties on debt and equity flows using panel data on middle income countries for the period 1984-2011. Adopting system GMM methodology, the paper empirically finds that ratified bilateral investment treaties with OECD countries have a combined positive influence on non-guaranteed debt flows and a direct positive influence on portfolio equity flows. The results highlight the importance of considering political risk guarantees in financial integration, regulation of financial markets and institutions, and capital liberalization.

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