Impact of Termination of India’s Bilateral Investment Treaties on Outward Foreign Direct Investment

During 2016–2018, India terminated many of its Bilateral Investment Treaties (BITs). This paper examines econometrically the effects of BIT termination on India’s outward foreign direct investment (OFDI). The difference-in-differences (DID) estimator is applied to quarterly, country-wise data on India’s OFDI from 2015Q1 to 2019Q4, employing a staggered DID research design. Data on India’s OFDI have been taken from the overseas direct investment database of the Reserve Bank of India. An adverse effect of BIT termination on India’s OFDI is found. Confirmation of this finding is obtained by estimating a gravity model from annual OFDI data for 2011–2019. The results show that the termination of BITs during 2016–2018 led to a substantial decline in India’s OFDI of about 40%–60%. The results of the study indicate that technology-seeking OFDI was unaffected, whereas market-and natural resource-seeking OFDI was affected. JEL Codes: C31, C33, K33, F21