Economics and Politics of International Investment Agreements
57 Pages Posted: 3 Apr 2017 Last revised: 15 Sep 2017
Date Written: August 28, 2017
We analyze the optimal design and implications of international investment agreements. These are ubiquitous, potent and heavily criticized state-to-state treaties that compensate foreign investors against host country policies. Optimal agreements cause national but not global underregulation ("regulatory chill"). The incentives to form agreements and their distributional consequences depend on countries' unilateral commitment possibilities and the direction of investment flows. Foreign investors benefit from agreements between developed countries at the expense of the rest of society, but not in the case of agreements between developed and developing countries.
Keywords: Foreign direct investment; expropriation; international investment agreements; regulatory chill.
JEL Classification: F21; F23; F53; K33
Suggested Citation: Suggested Citation