Bilateral Investment Treaties (BITs): The Global Investment Regime and Human Rights

We argue that the broad and legally enforceable protection offered to investors by bilateral investment treaties (BITs) worsens the human rights practices of developing countries. In such countries, BITs lock-in initial conditions attractive to investors that tend to be linked to vertical investment flows and trade competition, and include low environmental standards or labor rights. BITs also constrain the provision of welfare benefits, basic infrastructure, investment in environmentally friendly technologies or land reform. The combined lock-in and constraining effects of BITs are sources of popular grievance and dissent in states that host foreign investment. BIT protected investor rights, however, limit the ability of governments to back-down vis-a-vis investors, lowering the relative cost of human rights violations. Finally, we argue that democracies have higher accountability and a lower threat perception for dissent, mitigating the negative effect of BITs. Evidence from 113 developing countries from 1981 to 2009 supports our hypotheses.