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


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Thomas Tangerås


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Mob: +46 70 727 5448

Interdisciplinary European Studies

Trust in the European Union in Challenging Times


This is the first book in the Interdisciplinary European Studies collection. This volume provides an interdisciplinary perspective on trust in the EU from the vantage point of political science, law and economics. Lars Oxelheim, Lund University and affiliated to IFN, is one of the authors.


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