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Beyond investment flows: How perceptions of property rights drive the impact of IIAs

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Abstract

A vast body of research examines the impact of international investment agreements (IIAs) on foreign direct investment (FDI). Bilateral Investment Treaties (BITs), the investment chapters of free trade agreements, and investor-state contracts are among the most widely used policy instruments intended to attract investment by providing legal protections for foreign investors. While existing studies assess their influence on FDI flows, little research directly examines whether IIAs improve foreign investors’ perceptions of property rights enforcement in host countries—the primary mechanism through which these agreements are assumed to function. This manuscript addresses this gap by providing empirical evidence on the relationship between IIAs and foreign investors’ perceptions of property rights. Using firm-level data from the World Business Environment Survey, which includes over 36,000 firms across 54 countries, the study demonstrates that IIAs are associated with greater foreign investor confidence in property rights enforcement. By directly measuring investor perceptions rather than inferring them from aggregate investment trends, this analysis offers new insight into how IIAs function in practice and their role in shaping investment environments in developing economies.

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Data availability

Upon publication, data that The link to the Harvard dataverse is available at: https://dataverse.harvard.edu/dataset.xhtml?persistentId=doi:10.7910/DVN/IDN7UH.

Notes

  1. IIAs come in many different forms, but the most popular and most pervasive is the—bilateral investment treaties (BIT). Similar protections are offered in the investment chapters of trade agreeements, and some firms are able to gain access through bilateral firm-country contracts (Moehlecke & Wellhausen, 2022).

  2. https://investmentpolicy.unctad.org/international-investment-agreements.

  3. See Moehlecke and Wellhausen (2022) for an in-depth survey.

  4. Batra et al., 2003 and World Bank Enterprise Surveys available at: https://www.enterprisesurveys.org/en/enterprisesurveys.

  5.  United Nations Conference on Trade and Development (UNCTAD). International Investment Agreements Navigator. Retrieved from https://investmentpolicy.unctad.org/international-investment-agreements.

  6. I add one to the count of IIAs before logging so that the log of 0 (plus 1) IIAs is equal to 0 and I do not lose those observations.

  7. Appendix D measures IIAs beyond the count of those in force with high-income countries.

  8. IIAs do not always specify an exact ownership threshold for determining investor eligibility, but they generally extend protections to entities that exercise control over an investment. For example, the U.S. Model Bilateral BIT defines an “investor” as an enterprise that “attempts to make, is making, or has made an investment” in the host state, implicitly including firms with substantial ownership and control (U.S. Model BIT, 2012). Likewise, the European Union’s Model BIT defines an “investor” as an entity that “owns or controls” an investment in the host country, reinforcing the notion that majority ownership is a key criterion for treaty protections (EU Model BIT). While ownership thresholds may vary by agreement, the 51% benchmark reflects common legal and business practices for determining control, making it a reasonable standard for identifying firms eligible for IIA protections.

  9. For income classifications see: http://www.worldbank.org/data/countryclass/classgroups.htm.

  10. While property rights perceptions within a given country are likely to be correlated, there is no theoretical reason to believe that a particular year would have an impact on property rights perceptions across countries. I account for time in the model, but do not model it as a level within the specification.

  11. Gelman et al. 2004.

  12. Using a five-year average over the five-years before the survey does not change results.

  13. Additional and more detailed robustness checks available from the authors.

  14. I do not include the interaction between the first-stage residual and foreign ownership, as doing so leads to convergence issues in the control function model without substantively changing the results.

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Funding

The author did not receive support from any organization for the submitted work.

Author information

Authors and Affiliations

  1. McCourt School of Public Policy, Georgetown University, 37 th and O Streets NW, Washington, DC, 20057, USA

    Jennifer L. Tobin

Corresponding author

Correspondence to Jennifer L. Tobin.

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The authors declare none.

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Responsible editors: T. Renee Bowen, J. Lawrence Broz, Christina J. Schneider

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Appendices

Appendix 1

Table 2 WBES country list
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Appendix 2

Table 3 Summary statistics
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Appendix 3

Table 4 First stage regression
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Appendix 4: changes to IIAs

Table 5 Dependent variable: property rights perceptions
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Appendix 5: changes to independent variables

Table 6 Dependent variable: property rights perceptions
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Appendix 6: foreign ownership threshold

Table 7 Dependent variable: property rights perceptions
Full size table

About this article

Cite this article

Tobin, J.L. Beyond investment flows: How perceptions of property rights drive the impact of IIAs. Rev Int Organ (2025). https://doi.org/10.1007/s11558-025-09593-4

  • Accepted
  • Published
  • DOI https://doi.org/10.1007/s11558-025-09593-4

Keywords

  • International investment agreements
  • Bilateral investment treaties
  • Property rights
  • Foreign direct investment
  • Investor-state dispute resolution

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