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Does International Commercial Arbitration Promote Foreign Direct Investment?

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  • Andrew Myburgh
  • Jordi Paniagua

Abstract

This paper explores the role that international commercial arbitration plays in facilitating foreign direct investment (FDI). International commercial arbitration is a system of private commercial law that enables firms to more effectively enforce contracts by allowing them to avoid inefficiencies that arise from domestic courts. As a result, access to international arbitration should foster FDI. To explain the effect of international arbitration on FDI, this paper develops a model to explain the use and effect of resolving international disputes through arbitration. The predictions of the model are tested empirically in a gravity framework. The results of this analysis suggest that access to arbitration leads to an increase in FDI flows. This increase largely occurs through a change in the volume of investment, with a much smaller effect on the number of investment projects. The effect of arbitration is greater for countries with weaker institutions and for larger projects.

Suggested Citation

  • Andrew Myburgh & Jordi Paniagua, 2016. "Does International Commercial Arbitration Promote Foreign Direct Investment?," Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 597-627.
  • Handle: RePEc:ucp:jlawec:doi:10.1086/689188
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    References listed on IDEAS

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    Cited by:

    1. repec:spr:weltar:v:153:y:2017:i:4:d:10.1007_s10290-017-0287-z is not listed on IDEAS
    2. Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2018. "Trade law and trade fl ows," Working Papers 1804, Department of Applied Economics II, Universidad de Valencia.
    3. Rod Falvey & Neil Foster-McGregor, 2017. "Heterogeneous effects of bilateral investment treaties," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(4), pages 631-656, November.
    4. Ana Cuadros & Joan Martín-Montaner & Jordi Paniagua, 2017. "Migration and FDI: The role of job skills," Working Papers 2017/15, Economics Department, Universitat Jaume I, Castellón (Spain).

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