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Do Investor–State Disputes (Still) Harm FDI?

Published online by Cambridge University Press:  08 March 2021

Andrew Kerner  and
Krzysztof J. Pelc Open the ORCID record for Krzysztof J. Pelc [Opens in a new window]
Andrew Kerner
Affiliation:
Department of Political Science, Michigan State University, Ann Arbor, Michigan, USA
Krzysztof J. Pelc*
Affiliation:
Department of Political Science, McGill University, Montreal, Canada
*
*Corresponding author. E-mail: kj.pelc@mcgill.ca
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Abstract

What are the consequences of being sued for violating bilateral investment treaties? The conventional wisdom is that investor–state disputes (ISDS) tarnish countries' compliance records, and harm foreign direct investment in the process. This article re-examines this belief in light of recent trends in ISDS. The regime has witnessed a proliferation of claims, a growing proportion of which allege breaches of provisions like fair and equitable treatment and indirect expropriation. Combined with a decrease in the rate of success of such claims, the authors argue that the average ISDS claim now contains less information than it once did. If this is the case, investors should be less likely to update their expectations and reduce investments. This study examines 812 investor–state disputes from 1987 to the present day, and finds consistent evidence for this across two different datasets relating to firms' risk perceptions. Consequences of investor–state claims on foreign direct investment are only apparent in cases that allege direct expropriation. Even among these, the effects are smaller today than they were in the past. In sum, the reputational effects of ISDS claims appear to have been eroded by the developments of the last two decades. ISDS just isn't what it used to be.

Keywords

investor states dispute settlementreputationforeign direct investmentexpropriationfair and equitable treatment
Type
Article
Information
British Journal of Political Science , Volume 52 , Issue 2 , April 2022 , pp. 781 - 804
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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Kerner and Pelc Dataset

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https://doi.org/10.7910/DVN/DHL5UR
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