Investment Agreements and the Fragmentation of Firms across Countries

• In Event: The Domestic Politics of Foreign Direct Investment and Multinational Firms

Abstract

What explains firm influence over policy? A prominent explanation emphasizes how international markets create exit options for multinational firms, which constrains government policy. We emphasize another facet of international markets: firms can expand into new markets and relocate the ownership of assets, keeping existing investments in place. We document this behavior in the international investment regime, a domain where the location of asset owners circumscribes their access to investment treaties and international arbitration. By strategically locating subsidiaries, firms systematically expand their access to investment agreements and overcome the fragmentation of the investment regime. Drawing on data from the world's largest firms, we present systematic evidence consistent with this argument. We discuss consequences for political cleavages over the investment regime, and we draw out implications for the effects of investment agreements on FDI and for international agreements as a source of comparative advantage.

Authors

• Amy Pond, Technical University of Munich

• Timm Betz, Technical University of Munich

• Weiwen Yin, Texas A&M University