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The (Political) Economics of Bilateral Investment Treaties—The Unique Trajectory of Brazil

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  • Christian Bellak

    (Department of Economics, Vienna University of Economics and Business, 1020 Vienna, Austria)

  • Markus Leibrecht

    (School of Finance, City University of Macau, Macau, China)

Abstract

Brazil, after signing several traditional Bilateral Investment Treaties without ratifying them, recently shifted towards a different type of bilateral investment agreement, i.e., Investment Cooperation and Facilitation Agreements. Two claims have been made in the literature regarding the transition from traditional Bilateral Investment Treaties to Investment Cooperation and Facilitation Agreements—Claim #1: The non-ratification of the traditional BITs has not harmed Foreign Direct Investment into Brazil, a claim which puts into question the purpose of Bilateral Investment Treaties. Claim #2: While Investment Cooperation and Facilitation Agreements avoid some of the problems of traditional Bilateral Investment Treaties, on balance they are less effective than traditional Bilateral Investment Treaties would have been. We examine the two claims from an empirical economic point of view. We build on the literature about Brazil’s position vis-à-vis Bilateral Investment Treaties, which must be viewed by an amalgamation of (i) a historical legacy; (ii) domestic initiatives, and (iii) a particular U-turn in the political debate. Using empirical evidence on Foreign Direct Investment effects of Bilateral Investment Treaties, the following conclusions emerge: With regard to claim #1, empirical evidence in general as well as specific to Brazil suggests that Brazil has forgone Foreign Direct Investment by not ratifying traditional Bilateral Investment Treaties. Concerning claim #2, while Investment Cooperation and Facilitation Agreements include alternative dispute settlement mechanisms, which aim at a better compliance of states with the Investment Cooperation and Facilitation Agreements’ rules, rather than the compensation of foreign investors, the lower stringency of the State–State dispute settlement mechanism compared to Investor–State dispute settlement mechanism makes Investment Cooperation and Facilitation Agreements less effective. Yet, this weakening effect must be weighed against the effects on Foreign Direct Investment from innovative clauses in Investment Cooperation and Facilitation Agreements, which are absent in many traditional Bilateral Investment Treaties.

Suggested Citation

  • Christian Bellak & Markus Leibrecht, 2024. "The (Political) Economics of Bilateral Investment Treaties—The Unique Trajectory of Brazil," Economies, MDPI, vol. 12(6), pages 1-20, May.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:6:p:130-:d:1401269
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    References listed on IDEAS

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    1. Josef C. Brada & Zdenek Drabek & Ichiro Iwasaki, 2021. "Does Investor Protection Increase Foreign Direct Investment? A Meta‐Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 35(1), pages 34-70, February.
    2. Daniela Campello & Leany Lemos, 2015. "The non-ratification of bilateral investment treaties in Brazil: a story of conflict in a land of cooperation," Review of International Political Economy, Taylor & Francis Journals, vol. 22(5), pages 1055-1086, October.
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    4. Axel Berger & Matthias Busse & Peter Nunnenkamp & Martin Roy, 2013. "Do trade and investment agreements lead to more FDI? Accounting for key provisions inside the black box," International Economics and Economic Policy, Springer, vol. 10(2), pages 247-275, June.
    5. Shahryar Minhas & Karen L. Remmer, 2018. "The Reputational Impact of Investor-State Disputes," International Interactions, Taylor & Francis Journals, vol. 44(5), pages 862-887, September.
    6. Emma Aisbett & Matthias Busse & Peter Nunnenkamp, 2018. "Bilateral investment treaties as deterrents of host-country discretion: the impact of investor-state disputes on foreign direct investment in developing countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 119-155, February.
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