Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960–2000

Beginning in the early 1960s, bilateral investment treaties (BITs) have become the primary international legal mechanism for the governance of foreign direct investment. These agreements establish the terms and conditions for private investment by nationals and companies of one country in the jurisdiction of another.In this article, Professors Elkins, Guzman, and Simmons explore the advent and spread of BITs, observing a trend, over time, of increased economic and political similarity between new BIT partners. The authors present a theory that host governments and investors view BITs as devices that raise the expected return on investments by making credible commitments to treat foreign investors fairly. The article proposes a set of hypotheses based on this competitive theory and develops an empirical strategy for testing them against alternative explanations. The resulting findings provide evidence that competition is central to the spread of BITs and that both traditional economic explanations and dyadic characteristics explain BIT signings.After developing and testing this theory with data through 2000, a postscript analyzes additional data from 2000–2006, finding a decline in the overall rate of new signings, but an increase in BITs among lower-income countries. Based on this new data, the authors conclude that the basic competitive dynamic model remains intact.

The full text of this Symposium is available to download as a PDF.