The Rule of Law, Investment Treaties and Economic Growth: Mapping Normative and Empirical Questions

Abstract

Questions about the rule of law are of ongoing concern in discussions about economic development and the international investment treaty regime. As states move forward with negotiations for treaties of ever larger scope, certain salient questions of a normative and empirical character remain outstanding with respect to the relationship between the rule of law, international investment treaties, and foreign direct investment.

This paper addresses two areas of inquiry in particular. Following a preliminary discussion on the meaning of the rule of law in legal discourse, this paper offers observations about how differing conceptions of the rule of law map onto historical and contemporary debates about the treatment of foreign investors in host states. This discussion suggests that differences in conceptions of the rule of law with respect to the treatment of aliens in customary international law continue to pose challenges for the interpretation of the “fair and equitable treatment” standard in particular, and give rise to determinacy concerns about state treaty obligations which implicate the rule of law. In part two, this paper examines the empirical basis for certain oft-repeated assumptions about the relationship between economic growth, the rule of law and international investment treaties. The discussion in this part observes that while empirical work in the field has increased dramatically over the last several years, research has not yet established a solid basis for mapping this complex relationship, suggesting the need for further (and different) empirical research in the area.

Keywords: Rule of Law, Foreign Direct Investment, Investment Treaties, Fair and Equitable Treatment

JEL Classification: A12, F02