FOI Seminar 21 January 2011

Lauge Skovgaard Poulsen (London School of Economics, International Relations Department):

 

A BIT of econometrics is not enough: Bilateral Investment Treaties and FDI flows
(contact: )

 

Friday 21 January 2011, 12.30-13.30 Building A, seminar room 1

Abstract:

Bilateral investment treaties (BITs) are typically presented as vital risk-mitigating instruments providing foreign investors with “credible commitments” that their assets will not be expropriated, discriminated against, or otherwise maltreated post establishment. Accordingly, developing countries wanting to attract foreign investment should become more attractive destinations for multinationals when signing the treaties. A great number of studies and surveys indicate, however, that the vast majority of multinationals do not appear to take BITs into account when determining where - and how much - to invest abroad. Moreover, claims that the treaties are instrumental in increasing the prospects for broader economic integration agreements appear misguided. Apart from reviewing such evidence, this paper will discuss the feedback from a series of interviews. Firstly, BIT-negotiators from capital exporting states report that investors very rarely inquire about BITs, and when they do it is typically when disputes have arisen and not when they plan their investments. Secondly – and remarkably – the treaties have very little impact on political risk insurance (PRI) providers’ coverage and pricing policies. This is the case for both private companies as well as (almost) all public PRI programs, including the Multilateral Investment Guarantee Agency (MIGA). The paper will conclude by offering some reflections on why the standard narrative of BITs as credible commitments should perhaps be reconsidered.