Bilateral Investment Treaties, Leadership Turnover, and Economic Expropriations

• In Event: Policymakers as Individuals

Abstract

Can international treaties bind future leaders, even if those leaders have different policy preferences? International relations scholars have long proposed that treaties can serve that function, ensuring continuity in domestic and foreign policy on issues such as democratization, openness to trade, and international security commitments. That said, the willingness of the Trump administration to exit a variety of international agreements has pushed scholars to reexamine the degree to which treaties bind successor leaders.
This paper examines this question in the context of bilateral investment treaties (BITs) and their effects on the decisions of governments to expropriate economic assets. Governments sometimes expropriate privately held, locally-based economic assets such as mines, factories, and physical infrastructure. These assets are often owned by foreign actors, and are the manifestation of foreign direct investment (FDI). Governments expropriate for a variety of reasons, including to advance particular development goals, to reduce the perceived violation of national sovereignty, and/or to provide rents for individual members of government. Past scholarship has speculated that right wing governments are more likely than left wing governments to expropriate.
Foreign investors do not like expropriation of their assets, and are less likely to engage in FDI if they fear the risk of expropriation is high. Governments often favor FDI to accelerate development, and sometimes take steps to reassure potential foreign investors that the risks of expropriation are low. A common means of reassurance is the BIT, an agreement that explicitly describes the legal status of foreign investments, including legal protections.
In this paper, we ask the question: to what degree do BITs constrain expropriations, even in the face of shifting government preferences? A rightist, anti-expropriation government may have signed a BIT hoping to attract FDI. However, if a leftist government more open to expropriation takes power, then what? Does it exit the BIT? Does it cynically violate the BIT by expropriating? Or, does it continue to abide by the BIT because of the expected audience costs of exiting or violating the BIT?
We present a number of empirical tests to explore these questions, using existing data on government ideology (specifically, V-Party data that is part of the larger V-Dem project) and BITs, and new data on expropriations. Analyzing the behavior of all states since 1980, we first conduct a baseline test to examine if rightist governments are less likely than leftist governments to expropriate, and more likely to sign BITs. We next conduct event history analysis to examine if signing a BIT makes it more likely that a rightist government will fall from power. Third, we examine all leadership transitions, examining whether a shift from a rightist to a leftist government makes expropriation more likely, and if that increased likelihood is attenuated if the government is a party to BITs. Fourth, we use event history to examine the duration of BITs, testing whether a transition from a rightist to a leftist government increases the likelihood of a country exiting a BIT.
Our paper offers a number of scholarly contributions. First, it contributes to the broader scholarly agenda examining the degree to which international treaties do or do not constrain national governments, especially in the context of leadership turnover. Second, it develops a broader understanding of why governments elect to expropriate by examining the role of economic ideology and membership in BITs, using new data on expropriation. Third, it expands our understanding of BITs, specifically the factors causing governments to enter and exit them.

Authors

• Stefano Jud, Emory University

• Dan Reiter, Emory University