The Political Economy of Designing Bilateral Investment Treaties

Why do some bilateral investment treaties provide a high level of dispute settlement protection to investors while others do not? It has been widely debated whether bilateral investment treaties are economic agreements or political tools. Both economic and political approaches have produced some solid evidence to shed light on the proliferation of bilateral investment treaties. Yet neither of them has provided a satisfactory answer. We believe bilateral investment treaties, as a form of international treaty by nature, should have both economic and geopolitical implications, and thus a good explanation needs to address both economic and geopolitical motivations. We argue that both economic and geopolitical considerations shape states’ preferences in designing dispute settlement provisions. Specifically, economic needs have positive effects while geopolitical needs have negative ones on the strength of dispute settlement provisions.