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The Economics of Investor Protection: ISDS versus National Treatment

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  • Wilhelm Kohler
  • Frank Stähler

Abstract

Investor-state dispute settlements (ISDS) are supposed to protect foreign investors against domestic policies causing “unjustified” harm. This paper scrutinizes the effects of ISDS and national treatment provisions in a two-period model where foreign investment is subject to a hold-up problem. It shows that ISDS may increase welfare, but comes with additional regulatory distortions in the first period. A national treatment provision avoids these regulatory distortions, but implies entry distortions because it makes the hold-up problem also apply to domestic firms. If the domestic regulatory framework applies to many domestic firms, a national treatment provision welfare-dominates ISDS.

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  • Wilhelm Kohler & Frank Stähler, 2016. "The Economics of Investor Protection: ISDS versus National Treatment," CESifo Working Paper Series 5766, CESifo.
    • Handle: RePEc:ces:ceswps:_5766
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    Cited by:

    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. Horn, Henrik, 2018. "Investor-State vs. State-State Dispute Settlement," Working Paper Series 1248, Research Institute of Industrial Economics, revised 20 Feb 2019.
    3. Richardson, Martin & Stähler, Frank, 2019. "International agreements, economic sovereignty and exit," European Economic Review, Elsevier, vol. 120(C).
    4. Jozef Barunik & Zdenek Drabek & Matej Nevrla, 2020. "Investment Disputes and Abnormal Volatility of Stocks," Papers 2006.10505, arXiv.org.
    5. Horn, Henrik & Tangerås, Thomas, 2016. "Economics and Politics of International Investment Agreements," Working Paper Series 1140, Research Institute of Industrial Economics.
    6. 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.
    7. Monika Sztajerowska, 2021. "International Investment Agreements, Double-Taxation Treaties and Multinational Activity: The (Heterogeneous) Effects of Binding," PSE Working Papers halshs-03265057, HAL.
    8. Monika Sztajerowska, 2021. "International Investment Agreements, Double-Taxation Treaties and Multinational Activity: The (Heterogeneous) Effects of Binding," Working Papers halshs-03265057, HAL.
    9. Fischer-Thöne, Christian & Egger, Hartmut, 2021. "Institutional Reform and Global Value Chains," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242442, Verein für Socialpolitik / German Economic Association.
    10. Bernard Caillaud & Ariane Lambert-Mogiliansky, 2024. "Pro-business arbitration with ISDS," Working Papers halshs-03763380, HAL.
    11. 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.
    12. Konrad, Kai A., 2017. "Large investors, regulatory taking and investor-state dispute settlement," European Economic Review, Elsevier, vol. 98(C), pages 341-353.
    13. 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.
    14. Horn, Henrik & Tangerås, Thomas, 2021. "Economics of international investment agreements," Journal of International Economics, Elsevier, vol. 131(C).
    15. Nunnenkamp Peter, 2016. "Demokratie und internationale Investitionsabkommen: (Überraschende) Zusammenhänge und (lückenhafte) Erklärungen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(4), pages 364-382, December.
    16. Frank Stähler, 2023. "An optimal investor-state dispute settlement mechanism," Journal of Economics, Springer, vol. 138(1), pages 1-16, January.
    17. Ossa, Ralph & Staiger, Robert W. & Sykes, Alan O., 2023. "Standing in international investment and trade disputes," Journal of International Economics, Elsevier, vol. 145(C).
    18. 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.
    19. 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.

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    More about this item

    Keywords

    investor-state dispute settlement; national treatment provision; foreign direct investment; TTIP; TPP; regulation;
    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
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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