The political economy of bilateral investment treaties

The chapter provides a synthetic and critical review of political economy research related to bilateral investment treaties (BITs) and their effect on patterns of FDI flows. Firstly, the analysis of political institutions and FDI is grounded in a framework that emphasizes the sources and consequences of expropriation risk. The next section provides an overview of the broad but mostly inconclusive empirical literature that studies whether, how, and under what conditions BITs may influence investment flows. The fourth section overviews attempts to empirically answer the question of why governments agree to BITs and their terms at all. A fifth section then considers the unintended consequences of BITs, particularly with respect to the increased use of investor-state arbitration, and whether these costs place undue constraints on host governments. Finally, the author suggests three emerging areas of research that future work on BITs, FDI, and development outcomes should pursue.