Assessing the Impacts of Investment Treaties: Overview of the evidence

The report assesses the evidence on whether investment treaties attract foreign direct investment (FDI), facilitate domestic reforms, or limit government policy space. It finds that while treaties may modestly increase FDI, particularly in high-sunk-cost sectors like mining, they often benefit foreign investors at the expense of host states through distributive effects and potential regulatory chill. The evidence on other claimed benefits, such as 'levelling the playing field' or depoliticizing disputes, is found to be limited or contradictory.

• Quantitative evidence on whether investment treaties increase foreign direct investment (FDI) inflows is mixed. While a review by UNCTAD of 35 studies suggests a positive impact for the majority, a significant minority find the opposite, and results vary based on econometric models and data sets.
• Investment treaties appear most effective at attracting FDI in sectors with high sunk costs, such as the extractive and mining sectors, which are often considered less beneficial from a host country's perspective compared to high-tech manufacturing.
• The policy justification that investment treaties 'level the playing field' is contested because these treaties are fundamentally preferential instruments that grant foreign investors rights—such as 'fair and equitable treatment'—that are not necessarily available to domestic investors.
• There is little empirical evidence to support the claim that investment treaties facilitate domestic reforms or improve the rule of law; some quantitative studies have even found a negative impact on rule of law metrics.
• Investment treaties limit government policy space, and there are instances where states have delayed or relaxed regulations (e.g., tobacco packaging in New Zealand or environmental conditions in Germany) due to the threat of arbitration, although the extent of this 'chilling effect' is not well-researched.
• Investment treaties have clear distributive effects that benefit foreign investors at the expense of host states by allowing them to obtain compensation and strengthening their bargaining position in dispute settlements.
• Developing countries are more exposed to the costs of investment treaties due to lower legal capacity to evaluate treaty language, lower capacity for policy coordination, and limited ability to respond to arbitration threats.
• The practice of 'treaty shopping' allows investors to use corporate subsidiaries in third states to access the most favorable investment treaty, increasing the legal exposure of host states, particularly developing ones.
• Investment chapters within Free Trade Agreements (FTAs) may be more effective at promoting FDI than free-standing Bilateral Investment Treaties (BITs), potentially due to higher public visibility or the combination of investment liberalization with tariff reductions.
• Qualitative evidence suggests that the majority of investors do not value investment treaties in their decision-making, and the high cost of arbitration—averaging over USD 4 million per party—makes these treaties of limited value to small investors.

APA

Bonnitcha, J. (2017). Assessing the Impacts of Investment Treaties: Overview of the evidence. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/assessing-impacts-investment-treaties.pdf

Chicago

Bonnitcha, Jonathan. Assessing the Impacts of Investment Treaties: Overview of the evidence. International Institute for Sustainable Development, 2017. https://www.iisd.org/system/files/publications/assessing-impacts-investment-treaties.pdf.

Wikipedia

{{cite report |last1=Bonnitcha |first1=Jonathan |title=Assessing the Impacts of Investment Treaties: Overview of the evidence |publisher=International Institute for Sustainable Development |date=September 2017 |url=https://www.iisd.org/system/files/publications/assessing-impacts-investment-treaties.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{bonnitcha2017assessing, author = {Bonnitcha, Jonathan}, title = {{Assessing the Impacts of Investment Treaties: Overview of the evidence}}, institution = {International Institute for Sustainable Development}, year = {2017}, month = sep, url = {https://www.iisd.org/system/files/publications/assessing-impacts-investment-treaties.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }