Working Paper No. 1140

Economics and Politics of International Investment Agreements

Published: November 18, 2016, revised August 28, 2017Pages: 66Keywords: Foreign direct investment; Expropriation; International investment agreements; Regulatory chillJEL-codes: F21; F23; F53; K33

Economics and Politics of International Investment Agreements Henrik Horn and Thomas Tangerås

Close to 2 700 state-to-state investment agreements (IIAs) worldwide protect foreign direct investment (FDI) against host country policies. We analyze the design and implications of protection against regulatory expropriations in IIAs, emphasizing the role of externalities from FDI, countries’ unilateral commitment possibilities, and the direction of investment ‡ows. We show e.g. that (i) simple compensation mechanisms found in IIAs have desirable efficiency properties; (ii) optimal agreements do not cause underregulation ("regulatory chill"); (iii) IIAs can have strong distributional effects by benefi…tting investors at the expense of the rest of society; and (iv) IIAs should go further than only to impose non-discrimination.

Henrik Horn


Ph: +46 8 665 4540

Thomas Tangerås


Ph: +46 8 665 4526
Mob: +46 70 727 5448

Interdisciplinary European Studies

The European Union and the Return of the Nation State


This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

About the book


Seminars organized by IFN


To present ongoing research informal brown-bag seminars are held on Mondays at 11:30 am. This is an opportunity for IFN researchers to test ideas and results.

Academically oriented seminars are most of the time held on Wednesdays at 10 am. At these events researchers from IFN and other institutions present their research.

In addition, IFN organizes seminars open to the public. Topics for these are derived from the IFN research.

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 |