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

48 Pages Posted: 22 Aug 2004  

Zachary Elkins

University of Texas, Austin

Andrew T. Guzman

USC Gould School of Law

Beth A. Simmons

University of Pennsylvania Law School

Date Written: August 2004

Abstract

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. 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 competition. The evidence suggests that potential hosts are more likely to sign BITs when their competitors have done so. We also control for diffusion via coercion, social learning, and cultural networks. We find some evidence that coercion plays a role, but less support for learning or cultural explanations. 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.

Keywords: Bilateral investment treaties, investment, FDI, diffusion

JEL Classification: F00, F02, F20, F21, F23, K33

Suggested Citation

Elkins, Zachary and Guzman, Andrew T. and Simmons, Beth A., Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960-2000 (August 2004). UC Berkeley Public Law Research Paper No. 578961. Available at SSRN: https://ssrn.com/abstract=578961 or http://dx.doi.org/10.2139/ssrn.578961

Zachary Elkins

University of Texas, Austin ( email )

Austin, TX 78712
United States

Andrew T. Guzman (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

Beth A. Simmons

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

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