Political Risk and Investment Arbitration: An Empirical Study

Journal of International Dispute Settlement, 2016, Forthcoming

King's College London Law School Research Paper No. 2016-03

26 Pages Posted: 16 Dec 2015 Last revised: 31 Dec 2015

See all articles by Cedric G. Dupont

Cedric G. Dupont

Graduate Institute of International and Development Studies (IHEID)

Thomas Schultz

King's College London; University of Geneva; Graduate Institute of International and Development Studies (IHEID) - Geneva Center for International Dispute Settlement (CIDS); Graduate Institute of International and Development Studies

Merih Angin

Graduate Institute of International and Development Studies (IHEID)

Date Written: December 1, 2015

Abstract

Investment arbitrations should not happen too often, because they are costly processes for both parties. Yet they regularly happen. Why? We investigate the hypothesis that investment arbitrations are used as a means of last resort, after dissuasion has failed, and that dissuasion is most likely to fail in situations were significant political risk materializes. Investment arbitration should thus tend to target countries in which certain types of political risk has materialized. In order to test this hypothesis, we focus in this paper on two drivers of political risk: bad governance, and economic crises. We test various links between those two drivers of risk and arbitration claims. We use an original dataset that includes investment claims filed under the rules of all arbitration institutions as well as ad hoc arbitrations. We find that bad governance, understood as corruption and lack of rule of law (using the WGI Corruption and WGI Rule of Law indexes), has a statistically significant relation with investment arbitration claims, but economic crises do not.

Keywords: foreign investment, arbitration, political risk, bad governance, economic hardship

JEL Classification: E22, E62, G31, K33

Suggested Citation

Dupont, Cedric G. and Schultz, Thomas and Angin, Merih, Political Risk and Investment Arbitration: An Empirical Study (December 1, 2015). Journal of International Dispute Settlement, 2016, Forthcoming; King's College London Law School Research Paper No. 2016-03. Available at SSRN: https://ssrn.com/abstract=2703798

Cedric G. Dupont

Graduate Institute of International and Development Studies (IHEID) ( email )

Thomas Schultz (Contact Author)

King's College London ( email )

Somerset House East Wing
Strand
London, WC2R 2LS
United Kingdom

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Graduate Institute of International and Development Studies (IHEID) - Geneva Center for International Dispute Settlement (CIDS) ( email )

Villa Moynier
Rue de Lausanne 120b
Geneva, 12011
Switzerland

Graduate Institute of International and Development Studies ( email )

Geneva
Switzerland

Merih Angin

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
240
Abstract Views
970
rank
125,736
PlumX Metrics