Spatial Effects in Dyadic Data

Abstract

Political units often spatially depend in their policy choices on other units. This also holds in dyadic settings where, as in much of international relations research, analysis focuses on the interaction or relation between a pair or dyad of two political units. Yet, with few exceptions, social scientists have analyzed contagion in monadic datasets only, consisting of individual political units. This article categorizes all possible forms of spatial effect modeling in both undirected and directed dyadic data, where it is possible to distinguish the source and the target of interaction (for example, exporter/importer, aggressor/victim, and so on). This approach enables scholars to formulate and test novel mechanisms of contagion, thus ideally paving the way for studies analyzing spatial dependence between dyads of political units. To illustrate the modeling flexibility gained from an understanding of the full set of specification options for spatial effects in dyadic data, we examine the diffusion of bilateral investment treaties between developed and developing countries, building and extending on Elkins, Guzman, and Simmons's 2006 study. However, we come to different conclusions about the channels through which bilateral investment treaties diffuse. Rather than a capital-importing country being influenced by the total number of BITs signed by other capital importers, as modeled in their original article, we find that a capital-importing country is more likely to sign a BIT with a capital exporter only if other competing capital importers have signed BITs with this very same capital exporter. Similarly, other capital exporters' BITs with a specific capital importer influence an exporter's incentive to agree on a BIT with the very same capital importer.

Are stricter investment rules contagious? Host country competition for foreign direct investment through international agreements

“…5 Swenson (2005), Elkins et al (2006), Neumayer and Plümper (2010) and Bergstrand and Egger (2013) are all prominent examples in this regard. An emerging strand of the literature explicitly addresses the content of BITs, however.…”

“…This specific target contagion, in the terminology of Neumayer and Plümper (2010), may be exemplified by considering the competition for Japanese FDI among mainly Asian host countries.…”

“…The same holds for the decision of a developed source country to sign a BIT with a developing host country: it is only affected by other source countries' BITs with the same host country, rather than other source countries' BITs with any host country. Neumayer and Plümper (2010) thus find that what matters is what they term specific target and specific source contagion, whereas aggregate target and source contagion does not. Lupu and Poast (2013) propose another refinement by modelling the boom in BITs as a multilateral -or k-adic -process, rather than a dyadic process.…”

“…Lupu and Poast (2013) propose another refinement by modelling the boom in BITs as a multilateral -or k-adic -process, rather than a dyadic process. 5 Nevertheless, Lupu and Poast (2013) corroborate Neumayer and Plümper (2010) in that host countries conclude BITs with specific source countries in order to divert FDI away from competing hosts of FDI by this particular source country. 6 However, these recent BIT studies analyzing spatial dependence have some common shortcomings that we attempt to overcome.…”

“…Neumayer and Plümper (2010) refine the analysis of Elkins et al (2006) by exploring specific channels through which BITs may diffuse. The results of Neumayer and Plümper suggest that the decision of a developing host country to sign a BIT with a developed source country depends only on other host countries' BITs with the same source country, rather than other host countries' BITs with any source country.…”