IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v131y2021ics0022199621000106.html
   My bibliography  Save this article

Economics of international investment agreements

Author

Listed:
  • Horn, Henrik
  • Tangerås, Thomas

Abstract

Nearly 2700 international investment agreements protect foreign investment against host country policies. This paper analyzes the design and implications of their contentious provisions regarding regulatory expropriations. It derives conditions under which “carve-out” compensation mechanisms, similar to those in actual agreements, solve underinvestment and overregulation problems and simultaneously distribute surplus according to countries' bargaining power. The paper examines a number of additional policy relevant issues, for instance, how to modify agreements when carve-out compensation is inefficient, whether agreements cause “regulatory chill,” and the different motives and distributional consequences of North-South versus North-North agreements.

Suggested Citation

  • Horn, Henrik & Tangerås, Thomas, 2021. "Economics of international investment agreements," Journal of International Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:inecon:v:131:y:2021:i:c:s0022199621000106
    DOI: 10.1016/j.jinteco.2021.103433
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199621000106
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jinteco.2021.103433?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Guttorm Schjelderup & Frank Stähler, 2021. "Investor‐state dispute settlement and multinational firm behavior," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 1013-1024, September.
    2. Jonathan Thomas & Tim Worrall, 1994. "Foreign Direct Investment and the Risk of Expropriation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(1), pages 81-108.
    3. Avinash Dixit, 2011. "International Trade, Foreign Direct Investment, and Security," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 191-213, September.
    4. Emma Aisbett & Larry Karp & Carol Mcausland, 2010. "Police Powers, Regulatory Takings and the Efficient Compensation of Domestic and Foreign Investors," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 367-383, September.
    5. Aisbett Emma & Karp Larry & McAusland Carol, 2010. "Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-35, December.
    6. Bergstrand, Jeffrey H. & Egger, Peter, 2013. "What determines BITs?," Journal of International Economics, Elsevier, vol. 90(1), pages 107-122.
    7. Horn, Henrik, 2018. "Investor-State vs. State-State Dispute Settlement," Working Paper Series 1248, Research Institute of Industrial Economics, revised 20 Feb 2019.
    8. Lawrence Blume & Daniel L. Rubinfeld & Perry Shapiro, 1984. "The Taking of Land: When Should Compensation Be Paid?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(1), pages 71-92.
    9. Horn, Henrik & Tangerås, Thomas, 2016. "Economics and Politics of International Investment Agreements," Working Paper Series 1140, Research Institute of Industrial Economics.
    10. Eckhard Janeba, 2019. "Regulatory chill and the effect of investor state dispute settlements," Review of International Economics, Wiley Blackwell, vol. 27(4), pages 1172-1198, September.
    11. Hermalin, Benjamin E, 1995. "An Economic Analysis of Takings," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 64-86, April.
    12. Alessandro Turrini & Dieter M. Urban, 2008. "A Theoretical Perspective on Multilateral Agreements on Investment," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 1023-1043, November.
    13. Kohler, Wilhelm & Stähler, Frank, 2019. "The economics of investor protection: ISDS versus national treatment," Journal of International Economics, Elsevier, vol. 121(C).
    14. Miceli, Thomas J & Segerson, Kathleen, 1994. "Regulatory Takings: When Should Compensation Be Paid?," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 749-776, June.
    15. Dolzer, Rudolf & Schreuer, Christoph, 2012. "Principles of International Investment Law," OUP Catalogue, Oxford University Press, edition 2, number 9780199651801.
    16. James R. Markusen, 2001. "Commitment to Rules on Investment: The Developing Countries’ Stake," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 287-302, May.
    17. Ralph Ossa & Robert W. Staiger & Alan O. Sykes, 2020. "Disputes in International Investment and Trade," NBER Working Papers 27012, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Horn, Henrik, 2022. "Investment Treaty Reform when Regulatory Chill Causes Global Warming," Working Paper Series 1450, Research Institute of Industrial Economics, revised 23 Apr 2024.
    2. Holmberg, Pär & Tangerås, Thomas, 2021. "Sweden's Energy Investment Challenge," Working Paper Series 1383, Research Institute of Industrial Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Horn, Henrik & Tangerås, Thomas, 2016. "Economics and Politics of International Investment Agreements," Working Paper Series 1140, Research Institute of Industrial Economics.
    2. Konrad, Kai A., 2017. "Large investors, regulatory taking and investor-state dispute settlement," European Economic Review, Elsevier, vol. 98(C), pages 341-353.
    3. Frank Stähler, 2023. "An optimal investor-state dispute settlement mechanism," Journal of Economics, Springer, vol. 138(1), pages 1-16, January.
    4. Guttorm Schjelderup & Frank Stähler, 2021. "Investor‐state dispute settlement and multinational firm behavior," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 1013-1024, September.
    5. Kohler, Wilhelm & Stähler, Frank, 2019. "The economics of investor protection: ISDS versus national treatment," Journal of International Economics, Elsevier, vol. 121(C).
    6. Horn, Henrik, 2022. "Investment Treaty Reform when Regulatory Chill Causes Global Warming," Working Paper Series 1450, Research Institute of Industrial Economics, revised 23 Apr 2024.
    7. Horn, Henrik & Norbäck, Pehr-Johan, 2018. "A Non-Technical Introduction to Economic Aspects of International Investment Agreements," Working Paper Series 1250, Research Institute of Industrial Economics.
    8. Horn, Henrik, 2018. "Investor-State vs. State-State Dispute Settlement," Working Paper Series 1248, Research Institute of Industrial Economics, revised 20 Feb 2019.
    9. Jozef Barunik & Zdenek Drabek & Matej Nevrla, 2020. "Investment Disputes and Abnormal Volatility of Stocks," Papers 2006.10505, arXiv.org.
    10. Monika Sztajerowska, 2021. "International Investment Agreements, Double-Taxation Treaties and Multinational Activity: The (Heterogeneous) Effects of Binding," Working Papers halshs-03265057, HAL.
    11. Aisbett, Emma & Busse, Matthias & Nunnenkamp, Peter, 2016. "Bilateral investment treaties do work: Until they don't," Kiel Working Papers 2021, Kiel Institute for the World Economy (IfW Kiel).
    12. Haufler, Andreas & Mardan, Mohammed & Schindler, Dirk, 2018. "Double tax discrimination to attract FDI and fight profit shifting: The role of CFC rules," Journal of International Economics, Elsevier, vol. 114(C), pages 25-43.
    13. Monika Sztajerowska, 2021. "International Investment Agreements, Double-Taxation Treaties and Multinational Activity: The (Heterogeneous) Effects of Binding," PSE Working Papers halshs-03265057, HAL.
    14. Ossa, Ralph & Staiger, Robert W. & Sykes, Alan O., 2023. "Standing in international investment and trade disputes," Journal of International Economics, Elsevier, vol. 145(C).
    15. Li, Chen, 2016. "Signing a Bilateral Investment Treaty - A tradeoff between investment protection and regulation," VfS Annual Conference 2016 (Augsburg): Demographic Change 145505, Verein für Socialpolitik / German Economic Association.
    16. Nosal, Ed, 2001. "The taking of land: market value compensation should be paid," Journal of Public Economics, Elsevier, vol. 82(3), pages 431-443, December.
    17. Kevin Guerin, 2002. "Protection against Government Takings: Compensation for Regulation?," Treasury Working Paper Series 02/18, New Zealand Treasury.
    18. Emma Aisbett & Larry Karp & Carol Mcausland, 2010. "Police Powers, Regulatory Takings and the Efficient Compensation of Domestic and Foreign Investors," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 367-383, September.
    19. Paul Pecorino, 2013. "Compensation for Regulatory Takings with a Redistributive Government," Southern Economic Journal, John Wiley & Sons, vol. 80(2), pages 488-501, October.
    20. Richardson, Martin & Stähler, Frank, 2019. "International agreements, economic sovereignty and exit," European Economic Review, Elsevier, vol. 120(C).

    More about this item

    Keywords

    Carve-out compensation; Foreign investment; International investment agreement; Regulatory chill; Regulatory expropriation;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:131:y:2021:i:c:s0022199621000106. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.