The Lateralism Paradox: What Can Best Explain the Prevalence of Bilateralism in the Investment Regime?

Abstract:     
Most efforts to negotiate a multilateral agreement on the liberalization and protection of investment have failed despite the fact that there are more than 2,400 bilateral investment treaties in existence. We have coined this phenomenon the "lateralism paradox." Within this article, we consider five hypotheses that focus respectively on power asymmetries, incentives for defection, strategic linkages, domestic constraints, and ongoing adaptation. We found that the first four explanations are not supported by empirical evidence from the post-NAFTA period. We conclude that bilateralism appears to be the only feasible approach for negotiating investment rules, as well as the most sensible process to ensure continuous and dynamic adaptation.

Keywords: Investment, BIT, Bilateralism

JEL Classifications: F10, F13, F21, K33, P16

Accepted Paper Series