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Bilateral Investment Treaties, Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?
Published online by Cambridge University Press: 01 January 2024
Abstract
A long line of research, beginning with Macaulay's (1963) well-known study of “Non-Contractual Relations in Business,” suggests that the formal trappings of domestic law often have effects on private behavior that are, at best, “indirect, subtle, and ambiguous” (Macaulay 1984:155). Law and society scholars have spent somewhat less time exploring whether international law's effects on behavior are similarly attenuated. In this article I examine whether foreign investors take the presence of strong formal international legal protections into account when deciding where to invest. I focus on whether the presence of bilateral investment treaties, or BITs, meaningfully influences investment decisions. I present results from a statistical analysis that examines whether the formally strongest BITs—those that guarantee investors access to international arbitration to enforce investors' international legal rights—are associated with greater investment flows. I find no clear link between treaty protections and investment, a finding consistent with past law and society research but in tension with claims common in the BIT literature that the treaties should have dramatic effects on investor behavior.
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- © 2008 Law and Society Association.
Footnotes
The research underlying this article was supported by the National Science Foundation under Grant No. 0418036. I would like to thank Howard Erlanger, Carroll Seron, and the anonymous reviewers for their very thoughtful comments and suggestions; Elizabeth Asiedu and Nancy Brune for generously sharing their data; and Matt Golder and Luke Keele for providing technical advice.
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