The influence of interest: Real US interest rates and bilateral investment treaties

Timm Betz, Andrew Kerner

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

Bilateral Investment Treaties (BITs) present developing countries with a trade-off. BITs plausibly increase access to international capital in the form of foreign direct investment (FDI), but at the cost of substantially curtailing a government’s policy autonomy. Nearly 3000 BITs have been entered into, suggesting that many countries have found this trade-off acceptable. But governments’ enthusiasm for signing and ratifying BITs has varied considerably across countries and across time. Why are BITs more popular in some places and times than others? We argue that capital scarcity is an important driver of BIT signings: The trade-off inherent in BITs becomes more attractive to governments as the need to secure access to international capital increases. More specifically, we argue that the coincidence of high US interest rates and net external financial liabilities heightens governments’ incentives to secure access to foreign capital, and therefore results in BIT signings. Empirical evidence is consistent with our theory.

Original languageEnglish
Pages (from-to)419-448
Number of pages30
JournalReview of International Organizations
Volume11
Issue number4
DOIs
StatePublished - 1 Dec 2016
Externally publishedYes

Keywords

  • Bilateral investment treaties
  • Delegation
  • Foreign direct investment
  • Foreign exchange
  • International capital flows
  • International institutions
  • Legalization
  • Liberalism
  • Ratification

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