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Bilateral Investment Treaties, Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?

Published online by Cambridge University Press:  01 January 2024

Jason Webb Yackee
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Abstract

A long line of research, beginning with Macaulay's (1963) well-known study of “Non-Contractual Relations in Business,” suggests that the formal trappings of domestic law often have effects on private behavior that are, at best, “indirect, subtle, and ambiguous” (Macaulay 1984:155). Law and society scholars have spent somewhat less time exploring whether international law's effects on behavior are similarly attenuated. In this article I examine whether foreign investors take the presence of strong formal international legal protections into account when deciding where to invest. I focus on whether the presence of bilateral investment treaties, or BITs, meaningfully influences investment decisions. I present results from a statistical analysis that examines whether the formally strongest BITs—those that guarantee investors access to international arbitration to enforce investors' international legal rights—are associated with greater investment flows. I find no clear link between treaty protections and investment, a finding consistent with past law and society research but in tension with claims common in the BIT literature that the treaties should have dramatic effects on investor behavior.

Type
Articles
Information
Law & Society Review , Volume 42 , Issue 4 , December 2008 , pp. 805 - 832
Copyright
© 2008 Law and Society Association.

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Footnotes

The research underlying this article was supported by the National Science Foundation under Grant No. 0418036. I would like to thank Howard Erlanger, Carroll Seron, and the anonymous reviewers for their very thoughtful comments and suggestions; Elizabeth Asiedu and Nancy Brune for generously sharing their data; and Matt Golder and Luke Keele for providing technical advice.

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