Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960-2000

54 Pages Posted: 20 Jul 2007

See all articles by Beth A. Simmons

Beth A. Simmons

University of Pennsylvania

Zachary Elkins

University of Texas, Austin

Andrew T. Guzman

USC Gould School of Law

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Over the past forty-five years, bilateral investment treaties (BITs) have become the most important international legal mechanism for the encouragement and governance of foreign direct investment. Their proliferation over the past two decades in particular has been phenomenal. These intergovernmental treaties typically grant extensive rights to foreign investors, including protection of contractual rights and the right to international arbitration in the event of an investment dispute. How can we explain the diffusion of BITs? We argue that the spread of BITs is driven by international competition among potential host countries - typically developing countries - for foreign direct investment. We design and test three different measures of economic competition. We also look for indirect evidence of competitive pressures on the host to sign BITs. The evidence suggests that potential hosts are more likely to sign BITs when their competitors have done so. We find some evidence that coercion and learning play a role, but less support for cultural explanations based on emulation. Our main finding is that diffusion in this case is associated with competitive economic pressures among developing countries to capture a share of foreign investment. We are agnostic at this point about the benefits of this competition for development.

JEL Classification: K33

Suggested Citation

Simmons, Beth A. and Elkins, Zachary and Guzman, Andrew T., Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960-2000. University of Illinois Law Review, Forthcoming, U. of St. Gallen Law & Economics Working Paper No. 2007-21, Available at SSRN:

Beth A. Simmons (Contact Author)

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States
7817990076 (Phone)

Zachary Elkins

University of Texas, Austin ( email )

158 W. 21st St. Stop A1800
Austin, TX 78712
United States

Andrew T. Guzman

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

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