Do Economic Crises Trigger Treaty–Based Investor–State Arbitration Disputes?

The number of investor–state arbitration disputes has increased to more than 1000 to date, but their determinants are still not fully understood. We argue that in the wake of severe macroeconomic turmoil—economic crisis—policymakers have strong incentives to implement regulatory changes, even if these allegedly breach protection standards are provided by International Investment Agreements (IIAs). We base our empirical analysis on a unique country-dyadic dataset containing 961 investor–state arbitration claims over the 1987–2017 period. Our findings support the results of the related literature, which stresses the importance of good governance for avoiding arbitration cases. In contrast to this literature, we provide robust evidence consistent with a positive statistical association of economic crises and the number of investor–state arbitration disputes. Our investigation suggests that governments risk paying compensation to foreign investors for their actions in times when public regulation is needed in other areas. This may warrant a reconsideration of economic emergency measures of governments and the national security clause in International Investment Agreements in the current reform debate.