Bridging the Gap
Frankfurt Investment and Economic Law series
Edited by Stephan W. Schill, Christian J. Tams and Rainer Hofmann
Chapter 2: Developing countries in the investment treaty system: A law for need or a law for greed?
We have always been led to believe that investment treaties contribute to the economic development of the poorer states of the world. The theory is that they promote the stability that is lacking in the developing countries due to their absence of proper laws and functioning courts which could grant effective protection to foreign investment. By creating definite rules which result in remedies provided through arbitration, investment treaties provide stability for foreign investors. In that context, their fears having been effectively removed, foreign investors will move into developing states that sign investment treaties, providing secure treatment standards enforced through arbitration tribunals. Economists have challenged this rationale for investment treaties in recent times. Many argue that there is no evidence to show that investors choose to invest in developing countries because these countries have investment treaties. Instead, any cursory look at the picture will show that foreign investors invest not because there are investment treaties, the existence of which some investors do not even know of, but for other reasons such as the ready availability of mineral resources, cheaper labour, large markets for manufactured goods and the need to meet competition of other investors who would move into these states if they did not. If these reasons are the dominant ones, and if it is true that there is no correlation between investment flows and the signing of treaties, host states lose sovereignty unnecessarily by entering into investment treaties.
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