Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1140: Economics and Politics of International Investment Agreements

Henrik Horn () and Thomas Tangerås ()
Additional contact information
Henrik Horn: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Thomas Tangerås: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: This paper investigates the design and implications of international investment agreements. These are ubiquitous, potent and heavily criticized state-to-state treaties that protect foreign investment against host country policies. We show that optimal agreements cause national but not global underregulation ("regulatory chill"). The incentives to form agreements and their distributional consequences depend on countries’unilateral commitment possibilities and the direction of investment ‡ows. The bene…ts from agreements between developed countries accrue to foreign investors at the expense of the rest of society, but this is not the case for agreements between developed and developing countries.

Keywords: Foreign direct investment; Expropriation; International investment agreements; Regulatory chill

JEL-codes: F21; F23; F53; K33

66 pages, November 18, 2016

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