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Protecting home: how firms’ investment plans affect the formation of bilateral investment treaties


It is commonly accepted that developing countries pursue the creation of bilateral investment treaties (BITs) to attract foreign direct investment (FDI). However, it is relatively unknown what role developed countries play in the creation of BITs. When negotiating FDI deals, multinational corporations (MNCs) anticipate potential investment disputes between themselves and the host government. MNCs seek to reduce future investment risks, and asking their own government to secure BITs with the host country is an attractive option for doing so. To test my argument about capital-exporting actors influencing BITs, I analyze FDI project announcement data, which captures the timing of when MNCs finalize their plans to engage in FDI. The findings show that MNCs’ already-planned FDI is strongly associated with the probability of subsequent BIT signing between the home and host country. Moreover, by matching firm-level financial information with FDI project announcements, I show that home countries are more likely to establish BITs with host countries when large firms are the source of the planned FDI. These findings suggest that BIT creation is not driven solely by host countries’ economic needs, but also by home countries’ desire to protect their politically privileged firms.

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Data Availability

The datasets and replication codes are available on the Review of International Organization’s webpage.


  1. See Büthe and Milner (2008).

  2. Neumayer (2006), for instance, highlights how MNCs may lobby for the creation of BITs. Other works evaluate developed-country MNCs and investment treaties but mostly focus on arbitration (Pelc, 2017& Simmons, 2014). Also, Kerner and Lawrence (2014) employ US MNCs’ investment data to evaluate MNC investments in response to BITs.

  3. See Allee and Peinhardt (2010).

  4. There is skepticism about the positive effect of BITs on capital inflows (Rose-Ackerman & Tobin, 2005& Aisbett, 2007& Berger et al., 2011& Peinhardt & Allee, 2012).

  5. But, see Allee and Peinhardt (2010) and Albino-Pimentel et al. (2018).

  6. He also notes that these efforts contributed to the development of international dispute tribunals and BIT programs.

  7. Moreover, recent research indicates that developing countries are more likely to sign BITs when they are domestically vulnerable, such as during episodes of civil conflict (Billing & Lugg, 2019).

  8. Milner (1988)’s seminal work illustrates this point, showing how the internationalization of US firms substantially contributed to pressures for decreasing trade barriers.

  9. It is conceivable that MNCs may try to influence BITs by lobbying host governments directly. However, MNCs tend to rely on their links with their home governments to handle international legal arrangements. For instance, see Gertz (2018).

  10. Siemens, a German manufacturing conglomerate, began seeking its first investment opportunities in China in the late 1970s by holding its first major exhibition in Shanghai. Daimler-Benz first established its business, Beijing Jeep Corporation, in 1983 with an initial outlay of nearly $224 million (Peng, 2013, 420). Liebherr Haushaltgerate, an appliance maker, also concluded its first investment in the early 1980s (Yueh, 2011, 122).

  11. A few studies suggest contrasting results. For example, see Yackee (2010).

  12. These companies were headquartered primarily in the US, Canada and Western Europe.

  13. These survey respondents were executives in large firms that tend to contract closely with the state such as resource extraction firms.

  14. This letter is available at Accessed 22 Mar 2019.

  15. Lobby View contains 380 BIT-related lobbying reports. Accessed 31 May 2020.

  16. The lobbying reports related to BITs indicate that government bodies, which lead the formation and ratification of BITs, such as the White House, USTR, US Department of State, US Department of Commerce, US Department of the Treasury, and US Senate, are subject to corporate lobbying activities.

  17. The detailed transcript can be found here:

  18. The subsequent reactions to NAFTA also demonstrate corporate influence in the creation of international policy. For instance, see Manger (2009).

  19. The day before the BIT was signed, the STX Group already held a South Korea-Azerbaijan Culture Night that the Azerbaijani Ambassador attended (STX Corporation, 2007).

  20. As UNCTAD only provides annual FDI data, a year’s worth of bilateral FDI outflows were spread evenly over a 12 month period to be able to compare the UNCTAD and fDi Markets’ data. See for details:

  21. See

  22. The survey and policy report can be found here:

  23. The PM3 was a major-sized investment project that was approved for US $40 million loans by the Asian Development Bank. The details of the PM3 investment project can be assessed from here:

  24. The country reports can be found from here:

  25. Of the 391 BITs that developed home countries have signed during the examined period, 376 were with developing partner countries.

  26. According to IMF classification, 39 countries are defined as advanced economies. Eight countries, including San Marino and Puerto Rico, are dropped from the analysis because there is no investment data available or they have too few outward-oriented firms.

  27. Developed countries did not sign a BIT twice with the same developing country during the examined period.

  28. The fDi Markets database collects information about the volume of announced FDI by searching thousands of media sources, market research and investment agency reports, and internal Financial Times sources (fDi Markets, 2019).

  29. The investment amounts are aggregated across the examined period of this study.

  30. These are 10% of all matched firms. A detailed description of the matching process is reported in Online Appendix.

  31. For the analysis that employs a proportional measure to explain the formation of international agreements, see Manger (2012).

  32. This variable ranges from -10 to 10 and higher values indicate more democratic political institutions.

  33. PTA data is from the Design of Trade Agreements (DESTA) dataset (Dür et al., 2014) and BIT data is from UNCTAD’s international investment agreements navigator. Finally, pairs of dyadic controls are included.

  34. I also run a series of duration models for the robustness checks. These additional models are discussed in the empirical result section.

  35. Descriptive statistics on variables, host-home country list, and FDI dataset are available in Online Appendix

  36. Given that BIT signing is infrequent events that are being examined annually, the effect of developed home country MNCs’ FDI plans is substantial.

  37. Albino-Pimentel et al. (2018) also point out the possible measurement error due to estimated values in the dataset.

  38. Nairobi is Samsung’s headquarter, where the company supplies its products to 16 African countries. See

  39. In such a scenario, BITs are established regardless of whether home MNCs lobby for them because MNCs make investments when they become certain that a BIT is about to be formed.


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I am deeply grateful to my advisor, Todd Allee, for his invaluable guidance. I thank Timm Betz, Inho Choi, Yoonbin Ha, Rebecca Hann, Virginia Haufler, Kai Jäger, Brandon Ives, Scott Kastner, Andrew Kerner, Jaehyun Lee, Youngjoon Lee, Andrew Lugg, John McCauley, Helen Milner, Chungshik Moon, Felipe Munoz, William Reed, Jae Hyeok Shin, Jennifer Tobin, Kate Warnell, Dae-yeob Yoon and conference participants at the 2021 Yonjung Political Science Association meeting, and the 2018 International Studies Association, the 2019 Midwest Political Science Association and the 2020 American Political Science Association annual meetings for their helpful comments and suggestions.


This work is supported by the research funds from the Robert H. Smith School of Business.

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Kim, S. Protecting home: how firms’ investment plans affect the formation of bilateral investment treaties. Rev Int Organ (2023).

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  • Bilateral investment treaties
  • Multinational corporations
  • Foreign direct investment
  • Political lobbying