May 3: Yumi Park and Andrew McWard (Wisconsin)

Monday, May 3rd

Yumi Park and Andrew McWard (University of Wisconsin-Madison), “Inviting Arbitration: Democracies and the Domestic Politics of Bilateral Investment Treaties”

Abstract: Why do democracies form bilateral investment treaties (BITs)? BITs are commonly thought to deter direct expropriation, a concern investors often have toward autocratic host states for foreign direct investment (FDI). We argue that expropriation concerns also drive the formation of BITs in democracies, but due to indirect expropriation, or regulation. Democracies, when acting as host states for FDI, form BITs to generate a credible commitment against future regulation of foreign investment. However, this preference is split along partisan lines. Right-wing parties prefer attracting FDI to the creation of new regulations. Left-wing parties prefer the inverse. Right-wing parties–when in power–form BITs to provide a credible commitment to investors that unnecessary regulation will not occur in a future, potentially left-wing, administration. Right-wing parties thus form BITs during times of unified government when they can overcome opposition to the agreement and subsequent lock-in of policies. We test this argument quantitatively with original data on BIT signature, ratification, design and termination. We find strong support for our expectations surrounding BIT formation and termination, but have mixed results for our expectations on BIT design. The argument adds to our understanding of the domestic politics of international cooperation and how variation within democracies can affect international relations.

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