Sheyna Arthur and Alexandra Miller 

Bilateral investment treaties (BITs) are policy tools aimed at protecting foreign investors and their investments. Many scholars and economic development institutions contend that bilateral investment treaties (BITs) are an effective means to promote a favorable investment framework and attract foreign direct investment (FDI). As such in the past four decades, over 2400 BITs have been concluded. In light of the proliferation of BITs, there is an ongoing discussion among academics and policy makers on the impact these agreements have on economic development and decision-making. This work focuses two specific issues related to countries decision to participate in BITs. The first analysis examines the relationship between BITs and development aid from the perspective of the donor.  The second analysis examines how the BITs could affect developing countries ability to enact policies.

First Analysis

Given the premise that international development assistance (foreign aid) and FDI have positive growth effects on the recipient economy, mainly raising overall GDP and other macroeconomic indicators, this research examines the effects of BITs and other international regional agreements on foreign aid and FDI originating from the UK over the time period of 1980-2009. The findings indicate significance at a two-tailed level between ratification of an agreement and aid, and significance at the one-tailed level between ratification of an agreement and FDI. In other words, the difference in aid and FDI post-implementation of an investment agreement with the United Kingdom is significant.

Second Analysis

The most favored nation clause (MFN) in bilateral and multilateral treaties is one of the key tools developing countries have at their disposal to benefit from stronger bargaining power of third countries. MFN allows them to import benefits from other agreements to which their partners are members. In the case of bilateral investment treaties (BITs), however, which are aimed at promoting protection of investors, a special challenge to developing countries arises as a result of MFN. Ambiguity in the fair and equitable treatment (FET) and umbrella clauses of BITs have been interpreted in a manner that not only benefit investors, but also undermines countries’ ability to enact policies and legislation that benefit/protect their development. Consequently, in the same manner that MFN can be used to import benefits to states, it can also increase their exposure to potential investment disputes relating to FET and umbrella clauses and limit their policy space.

Using the BITs signed by Botswana (anti-BITs) and Ghana (pro-BITs), both considered key investment and development success stories for Sub-Saharan Africa, this paper examines how their MFN, FET, umbrella and investor-state dispute settlement (ISDS) clauses can increase their risk of investment disputes and argues that the more BITs a country is a party to, the less space they have to enact policies.