Bilateral Investment Treaties and International Arbitration: Towards the Improvement of Domestic Institutions?

Abstract

The bilateral Investment Treaties (BITs) have two major objectives: one concrete and immediate, and another vague and mediate. First, these agreements provide guarantees to foreign investors regarding the treatment that host States shall accord to their investments. Second, the negotiation of these treaties seeks to attract more foreign investment to signatory countries. The BITs scheme is therefore based on the assumption that foreign capital flows are affected by the institutional incapacity of potential host States. These treaties would serve to remedy this deficiency. From a political economic perspective, however, the benefits for host States are subject of discussion. This paper aims to expand this debate, considering whether BITs help host States to develop appropriate institutions for their democracies and market economies.