Conflicted Capital: The Effect of Civil Conflict on Patterns of BIT Signing

Abstract

Why do developing countries commit to costly international agreements? Massive arbitral awards and the discovery that rich countries write investment rules have led to a newfound appreciation of the costs of bilateral investment treaties (BITs). Yet, developing countries continue to sign them. This article advances a novel argument for why governments sign potentially costly agreements. We argue that civil conflict changes the decision calculus of governments by rendering them domestically insecure. This insecurity makes governments more willing to sign agreements, like BITs, that sacrifice future policy autonomy. BITs can attract foreign direct investment (FDI) and signal competence, which have important domestic political benefits. BITs are also attractive postconflict since they can be copied quickly from past templates and require few ex ante policy changes. Empirical tests of over 150 countries from 1960 to 2012 demonstrate that governments sign more BITs after civil conflict. Additional tests indicate that postconflict BITs increase FDI inflows, especially after devastating conflict. Our results provide a unique perspective on why governments cede sovereignty to international institutions.

Constraints and incentives in the investment regime: How bargaining power shapes BIT reform

“…There may also be ideological reasons for which states choose to cooperate with certain partners over others, with some states willing to sign and maintain agreements with autocrats or populists (Debre, 2022(Debre, , 2021bVoeten, 2021). Furthermore, various domestic political dynamics have been found to influence BIT signing, such as attempts to signal competence to domestic audiences in the face of a civil conflict (Billing & Lugg, 2019), or to enhance leadership survival in autocracies (Arias et al, 2018). Despite BITs continuing to be highly technical instruments, decisions regarding them are fundamentally political beyond their international legal and economic purposes.…”

Introducing the Electronic Database of Investment Treaties (EDIT): The Genesis of a New Database and Its Use

“…When it comes to exploring and explaining the variation in treaty design, the BIT literature has made important advances in recent years by relying on manually coded data. There is evidence that for instance after economic downturns or civil wars, countries are more likely to sign BITs (Billing and Lugg, 2019;Simmons, 2014). Further, autocratic regimes are not shy in opting for bilateral investment treaties to bolster their political survival (Arias et al, 2018;Mazumder, 2015).…”