Cost of Compliance, Autocratic Time Horizon, and Investment Treaty Formation

Abstract

This paper investigates the domestic political factors that shape the participation of autocratic regimes in bilateral investment treaties (BITs). We argue that autocratic time horizon positively affects governments’ motive to sign BITs by influencing the costs of complying with investor protection standards included in the treaties. These treaty provisions severely constrain discretionary policy maneuvers that are critical to autocratic survival. Autocratic regimes expecting to rule for a considerable time period are willing to relinquish some discretionary policy space in the interest of enhancing the credibility of their investor protection commitment—and hence promoting investment inflows. However, autocratic governments with short time horizons rely heavily on discretionary policy maneuvers to stabilize their grip on power and are likely to infringe on investors’ interests to extract resources to ensure their political survival, making the costs of compliance with BITs too high to bear. Using a country-dyad data set of BIT signatures from 1971 to 2009, we find strong support for our argument.