The U.S. Congress and the Central American nations are currently considering the Central American Free Trade Agreement (CAFTA). Through CAFTA, Central American governments hope to attract new inflows of foreign direct investment. Washington promises that investment will start flowing if Central American governments agree to far-reaching investment rules. This article reviews some studies that show that the signature of investment agreements does not correlate with increasing investment flows in a country. Some studies compared investment flows from the United States to countries with which the U.S. has and does not have investment agreements. What they found was a negative relationship. The authors wrote, “Overall, these results indicate that signing an investment treaty with the United States does not correspond to increased foreign direct investment flows.”
