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Bilateral investment treaties as deterrents of host-country discretion: the impact of investor-state disputes on foreign direct investment in developing countries

Emma Aisbett, Matthias Busse and Peter Nunnenkamp

Review of World Economics (Weltwirtschaftliches Archiv), 2018, vol. 154, issue 1, 119-155

Abstract: Abstract The recent boom of investor-state disputes filed under international investment agreements has fueled a controversial academic and policy debate. We study the impact of these compensation claims on foreign direct investment (FDI) flows to the responding host country. Our econometric analysis focuses on differences in the FDI response from BIT-partner and non-partner countries of developing host countries. This approach allows us not only to distinguish competing hypotheses about BIT function, but also to address endogeneity concerns in earlier studies. We find that BITs stimulate bilateral FDI flows from partner countries—but only so long as the developing host country has not had a claim brought against it to arbitration. Our results provide an additional explanation for the policy-changes observed in many states subsequent to their first experience of an investor-state dispute.

Keywords: Bilateral investment treaties; Investor-state dispute settlement; Compensation claims; Foreign direct investment; Developing host countries (search for similar items in EconPapers)
JEL-codes: F02 F21 F23 F53 K33 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:weltar:v:154:y:2018:i:1:d:10.1007_s10290-017-0285-1