Subsequent to editorial input by Cambridge University Press, paper is forthcoming in:World Politics, vol. 65, no. 2 (April 2013)Abstract. Using the international investment regime as its point of departure, the paper applies notions of bounded rationality to the study of economic diplomacy. Through a multi-method approach, it shows that developing countries often ignored the risks of bilateral investment treaties (BITs) until they themselves became subject to an investment treaty claim. Thus the behavior of developing country governments with regard to the international investment regime is consistent with that consistently observed for individuals in experiments and field studies: they tend to ignore high-impact, low-probability risks if they cannot bring specific 'vivid' instances to mind.

This paper compares the current foreign direct investment (FDI) recession with FDI responses to past economic crises. The authors find that although developed country outflows have taken an equally big hit as major developed countries have after past crises, outflows seem to be bouncing back more slowly this time. By contrast with the overall decline in recent years, inflows to emerging markets often remained stable during their past economic crises. Both patterns indicate that the global scale of the current crisis has led to a greater FDI response than after individual country crises in the past. Compared with global economic downturns since the 1970s, the current FDI recession has also been greater in magnitude. The exception is the FDI plunge in the early 2000s, despite the much smaller economic crisis at the time. The authors conclude by recommending that policymakers not just further liberalize FDI regimes-as they find was the typical pattern during earlier crises-but rather use the downturn to rethink their FDI policies with an enhanced focus on "sustainable FDI" promotion. JEL Codes: F13, F21, F23

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractLiterature on the investment treaty regime has shown little interest in diplomatic interests and agendas as drivers of treaty negotiations. This contrasts with other work on international economic relations, such as the negotiation of preferential trade agreements. Our paper fills this gap through a multi-method approach. In line with other areas of economic diplomacy we show that strategic foreign policy considerations have driven some investment treaty negotiations. Secondly, we show that some diplomats have been successful in promoting investment treaties to further their own individual interests. Rooted in public choice theory, this second causal mechanism is often overlooked in literature on economic diplomacy. British investment. Negotiations couldn't proceed, however, until the two states had settled a number of outstanding financial matters.Once settled, the Romanian Embassy in London handed over a draft text in the autumn of 1975 to which London responded a few months later. From that moment negotiations went swiftly. Bucharest was anxious to get the treaty signed at the Ministerial visit to London in March. If the UK stalled, Romanian insisted that "they would regard this as a markedly negative element in the development of closer Anglo-Romanian friendship." 4 To London, this sounded as if "the Romanians would stall on Concorde overlying rights, the purchase of further British aircraft and the joint venture agreements that [were] in the pipeline". Romania was strong-arming the United Kingdom to enter into a BIT. Moreover, Harold Wilson, the British Prime Minister, had announced his resignation just a few days before the visit, which ruled out a meeting with the Romanian Vice Premier. This made the signing of the BIT even more important and the "Romanians were much put out that at one stage it looked as though there would be nothing for Mr. Patan to sign …". Foreign policy agendas were not isolated to the Romanian side. While British negotiators sought to negotiate the best deal possible, FCO put pressure on them to conclude the talks in time for the visit. This was the first BIT London had negotiated with a Communist country and the first to be negotiated by any Western country with Romania. Accordingly, FCO officials found that the treaty's "significance is consequently rather more political than commercial". 5The 1976 UK-Romania BIT was but one of thousands of investment treaties signed over the last half a century, most of them bilater...

Developing countries have entered into investment treaties for decades. One promise of signing up to these potent agreements was that it would allow risky investment climates to attract more capital. This proclaimed benefit of the investment treaty regime is subject to a large, and growing, empirical literaturewith mixed findings. Yet, another, and potentially far more important promise of the treaties has been entirely ignored in empirical literature. Architects of the investment treaty regime as well as many current proponents have suggested that the treaties would allow developing countries to de-politicize investor-state disputes; i.e. shield commercial disputes from broader political and diplomatic considerations with developed states. While this argument is widely accepted by legal scholars and practitioners and explicitly promoted by capital-exporting states, it has never been subjected to empirical investigation. We provide the first such test, using an original dataset of US diplomatic actions in 219 individual investment disputes across 73 countries as well as detailed case studies drawing on internal US State Department diplomatic cables. We find no evidence for the de-politicization hypothesis: diplomatic engagement remains important for investor-state dispute settlement, and American diplomats are just as likely to intervene in developing countries that have ratified investment treaties with the US as those that have not. And though aggressive, coercive American intervention in investment disputes is rare, this is a general feature of American investment diplomacy after the Cold War, rather than one limited to investors with recourse to legalized dispute settlement procedures. These findings provide a critical corrective to our understanding of the investment treaty regime, and have important implications for understanding the effects of international legalization on developing countries.

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