The costs and benefits of IIAs to developing countries

By any measurement, the number of IIAs in existence is significant: over 2,800 BITs existed as of the end of 2010, not counting “other IIAs” which number over 300. The number of countries party to them—over 175—is also telling. ¹ Some countries, such as China and India, have respectively signed over 80 agreements each. ² One would tend to assume that if countries have generally continued to sign and ratify IIAs it is because they promote FDI. Empirical studies, however, have revealed a less obvious picture. ³ This chapter does not seek to present an econometric analysis of the link between IIAs and increased FDI between member countries—an issue that has been the subject of a series of recent papers. ⁴ Rather, this chapter weighs the theoretical benefits and costs to developing countries from committing to IIAs using a game-theory framework, specifically Markusen’s knowledge capital model. ⁵