Foreign Direct Investment, Investment Treaty Arbitration and the Rule of Law

Susan Franck, Washington and Lee University School of Law


In the last decade, there has been a surge in the number of multi-lateral and bilateral investment treaties governments have signed; meanwhile there have been dramatic increases in the amount of foreign direct investment (FDI); and, more recently, the number of claims brought under investment treaties has spiked. This Article examines the relationship amongst these factors and is the first to review the emerging empirical economic literature investigating whether investment treaties achieve their goal of promoting FDI. The Article then specifically evaluates the impact that the procedural right to arbitrate investment claims plays in the process of promoting FDI and facilitating investment decisions. It considers this issue directly by evaluating models with non-traditional treaty dispute resolution mechanisms and considering the impact on FDI levels. The article then looks at the indirect role that investment treaty arbitration can play in facilitating investment and promoting the rule of law. The Article concludes that investment treaty arbitration's precise impact on FDI is unclear; nevertheless, as it has important implications for investment and the rule of law, it is a factor worthy of ongoing consideration.