Bhutan's Integration with the Global Economy : International Investment Treaties and Conventions
In this context, Bhutan can become wealthier through accelerating both domestic and foreign investment, as well as signing investment treaties. These investments could provide not just capital but also bring necessary skills, knowledge and ideas, a...
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| Format: | Policy Note |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/145751564642307833/Bhutans-Integration-with-the-Global-Economy-International-Investment-Treaties-and-Conventions http://hdl.handle.net/10986/32294 |
| Summary: | In this context, Bhutan can become
wealthier through accelerating both domestic and foreign
investment, as well as signing investment treaties. These
investments could provide not just capital but also bring
necessary skills, knowledge and ideas, and help the country
move beyond hydropower. Today FDI inflows are small and
constrained, on the one hand, by regulatory barriers and
insufficient investment promotion, and, on the other, by
inadequacies in skills and infrastructure. Bhutan can
benefit from the experience of East Asia and other countries
on how to break out of this low investment trap. FDI can
help the macroeconomic balance by increasing exports and
reducing the current account deficit, although it is not
clear the future impact on growth, since it will depend on
the quality and type of FDI inflows. FDI can also help
create trade. Theoretically, firms invest abroad to expand
their sales markets when trade costs are too high, therefore
FDI is a substitute for trade. FDI in non-tradable sectors
(services, etc) has this feature. However, in practice, FDI
goes to export-oriented sectors including extractives but
also manufacturing. Given the landlocked nature of
geographic setting of Bhutan (with higher trade cost than
countries such as India or Bangladesh), FDI could go
primarily to non-tradable (at least as shown in the recent
trend in the greenfield FDI). In this context, it will be
important to use FDI to tap into regional value chains. |
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