Does International Commercial Arbitration Promote Foreign Direct Investment?
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.
Myburgh, Andrew and Paniagua, Jordi
"Does International Commercial Arbitration Promote Foreign Direct Investment?,"
Journal of Law and Economics: Vol. 59
, Article 5.
Available at: https://chicagounbound.uchicago.edu/jle/vol59/iss3/5