Self-Interest, Foreign Need, and Good Governance: Are Bilateral Investment Treaty Programs Similar to Aid Allocation?

Abstract

Article (refereed) Eric NeumayerSelf-interest, foreign need and good governance : are bilateral investment treaty programs similar to aid allocation? suggests that developed countries pursue a mixture of self-interest, foreign need and, possibly, good governance. We find evidence that both economic interests of developed countries' foreign investors and political interests of developed countries determine their scheduling of BITs. However, foreign need as measured by per capita income is also a factor, whereas good governance by and large does not matter. These results suggest that BIT programs can be explained employing the same framework successfully applied to the allocation of aid. At the same time, self-interest seems to be substantively more important than developing country need when it comes to BITs.

Delayed Ratification: The Domestic Fate of Bilateral Investment Treaties

“…Our study of BIT ratification demonstrates that politically interesting dynamics are at play between treaty signature at the international level and ratification at the domestic level+ Notable implications arise when we combine these findings with what we know about BITs more generally+ In some cases, there seem to be mutually reinforcing factors that lead to investment, to the signing of investment agreements, and to their ratification+ Political and cultural affinity, for example, increases investment flows and the propensity of dyads to sign BITs 86 and also speeds rati-fication+ Strong legal and political institutions attract investment and BIT partners 87 and also facilitate ratification by rendering political systems more predictable and transparent+ For these variables, the effect throughout the treaty-making pro- 86+ See Leblang 2010;Neumayer 2006;andElkins, Guzman, andSimmons 2006+ 87+ See Stasavage 2002;and Elkins, Guzman, and Simmons 2006+ cess is in the direction of more exchange and cooperation, though somewhat different causal mechanisms are at play in each stage+ Other factors work quite differently across stages-they may be conducive to signing but not to ratification, or vice versa+ The effect of domestic institutions illustrates this point+ Common law countries are less attracted to BITs but ratify them more quickly once they are signed, and democracies are not more attractive as BIT partners even though they are more reliable ratifiers+ 88 While weak checks and balances at the domestic level has been a major motivation for seeking credible commitment through BITs, 89 the same constraints have the effect of slowing ratification once the treaty is brought home+ Historically, the end of the Cold War increased the rate of BIT signing but has slowed their average time to ratification+ Understanding that signature and ratification result from different processes helps explain why they seem to have distinct effects as well+ Consider the notoriously complicated relationship between investment agreements and investment flows+ Increasing evidence shows that, while signed BITs have little or no effect on FDI, BITs in force do indeed have the intended positive effect+ 90 The United States-Russia BIT, signed in 1992, provides an illustration+ From the perspective of the Russian leadership, the treaty was necessary to attract much-needed foreign investment into the country+ However, while the U+S+ Senate quickly ratified, it bogged down in the Russian Duma, where competing economic interests battled for control and where the oil lobby in particular opposed opening the door to foreign ventures+ 91 This uncertainty contributed to a lack of confidence in the Russian investment environment and a markedly sluggish flow of American investment into Russia+ 92 More than twenty years later, Russia has yet to ratify its BIT with the United States+ Beyond their effect on investments, ratified BITs have important political and legal consequences+ The binding investor-state dispute settlement mechanism found in almost all BITs has proven to be highly consequential, leaving many hosts concerned about the political and economic costs of arbitration+ 93 This has spurred a trend toward withdrawal from and renegotiation of existing BITs, sometimes with provisions designed to be less investor friendly+ 94 As BITs become more politically controversial, especially in the developing world, we could see longer ratification delays in the future+ All of this suggests that those interested in the politics, economics, and law of BITs should make an analytical distinction between signature and ratification, a lesson th...…”

Do Bilateral Investment Treaties Increase Foreign Direct Investment to Developing Countries?

“…Such treaties represent a non-trivial interference with the host countries' sovereignty as they provide protections to foreign investors that are enforceable via binding investor-to-state dispute settlement. While the motivations driving developing countries to incur these costs may be varied (see Guzman 1998;Elkins, Guzman and Simmons 2004;Neumayer 2005), the costs might be justified if the ultimate outcome is an increase in the inward flow of FDI. 1 But is this what actually occurs?…”

Competing for Scarce Foreign Capital: Spatial Dependence in the Diffusion of Double Taxation Treaties1

“…Since there is no conclusive argument for the choice of direction in a DTT dyad and information on who started the negotiations is not available in individual cases, the main analysis is based on undirected dyads. However, in the robustness section, we model DTTs as directed from OECD to non‐OECD countries, similar to what Neumayer (2006) proposes for Bilateral Investment Treaties.…”