  There is considerable debate whether the domestic political institutions
(specifically, the country s level of democracy) of the host developing country
toward foreign investors are effective in establishing the credibility of
commitments are still underway, researchers have also analyzed the effect of
international institutions such as (GATT-WTO) membership and Bilateral
Investment treaties (BIT) in their role of establishing the credibility of
commitment to attract foreign investments. We argue that there are qualitative
differences among various types of trade agreements and full-fledged trade
agreements (FTA-CU) provide credibility to foreign investors and democracy
level in the host country conditions this effect whereas the partial scope
agreements (PSA) are not sufficient in providing credibility of commitments and
not moderated by democracy. This paper analyses the impact of heterogeneous
TAs, and their interaction with domestic institutions, on FDI inflows.
Statistical analyses for 122 developing countries from 1970 to 2005 support
this argument. The method adopted relies on fixed effects estimator which is
robust to control endogeneity on a large panel dataset. The strict erogeneity
of results by using a method suggested by Baier and Bergstrand (2007) and no
feedback effect found in sample. The results state that (1) More the FTA-CU
concluded, larger the amount of FDI inflows are attracted into the developing
countries and PSA are insignificant in determining the FDI inflow; (2) FTA CU
are complementary to democratic regime whereas the conditional effect of PSA
with democracy on levels of FDI inflows is insignificant.
