The impact of investment treaties on domestic governance in developing countries

Abstract

This paper empirically examines the impact of investment treaties on domestic governance in developing countries, through cross-country quantitative analysis and a detailed qualitative case-study on Myanmar. We clarify a variety of mechanisms that plausibly link investment treaties to impacts on domestic governance. Considering incentive, acculturative and political economy mechanisms, we find little evidence that the treaties lead to changes in domestic law, institutional structure or policy-making. The treaties also have surprisingly limited relevance in investor-state bargaining outside formal adjudicatory processes. Overall, our findings point to a profound decoupling between investment treaties and domestic governance; they also clarify the conditions under which such decoupling can persist, notwithstanding material incentives for states to ensure tighter alignment. Rather than interpreting decoupling as a failure of domestic implementation, our case study suggests that the problem is with the treaties themselves, in that they place obligations on developing countries that cannot realistically be implemented.