Impact of Double Taxation Treaties on FDI flows: an application by Centrality

The objective of this study is to analyse the impact of double taxation treaties (DTTs), or tax treaties, on foreign direct investment (FDI) flows. We distinguish between inflows and outflows and between volume flows and flows as a percentage of GDP. Using the GMM system estimator of \cite{blundell1998initial} on a panel of 188 developed, emerging and developing countries, covering a relatively long period of 28 years (1990-2017), we show that DTTs, summarised by the country centrality index, positively and significantly influence FDI inflows. This result remains verified when considering FDI outflows, although the short-run effect decreases in magnitude. Also, considering flows as a percentage of GDP, or changing the measure of centrality, does not qualitatively affect these results. Moreover, the magnitude of this effect evolves following the geographical areas considered and the absorption capacity of the destination countries. JEL: F21, C45, H71