Non-trade provisions in trade agreements and FDI

Preferential trade agreements (PTAs) increasingly feature a variety of provisions related to civil and political rights (CPR), economic and social rights (ESR), and environmental protection (EP). In this paper we estimate the effect of the degree of legalization of PTAs in these non-trade provisions on the flow of bilateral greenfield FDI. We explore this relation in a structural gravity setting and find that all three types of non-trade provisions affect the flow of FDI negatively. This appears to be driven by investments directed to middle- and low-income countries, in particular for EP provisions. For the subsample of EU PTAs, only CPR provisions appear to have an effect on the flow of FDI.