Reputation costs in investor-state dispute settlement

Official URL: http://192.168.1.20/record=b1505264 (Table of Contents)

Previous studies on World Trade Organization (WTO) dispute settlement suggest different aspects as to how developing countries tend to fail in executing their bargaining power in dispute settlement. One aspect that has yet to be analyzed is developing country bargaining power with respect to likelihood of settlement in such international disputes. A further analysis on the topic sheds light on another dimension on how international dispute mechanisms do not necessarily bring forth ''right'' over ''might''. This thesis focuses on International Centre for Settlement of Investment Disputes (ICSID), a platform on which developing countries face foreign investors, and highlights how the established mechanisms of dispute resolution cannot protect the bargaining power of developing countries due to their dependence on further foreign direct investment (FDI). This study adds another dimension through which one can observe the relative weak stance developing nations have when it comes to international disputes. A simple formal model emphasizes the role of reputation as a factor in determining the bargaining power a country has with respect to an investment dispute case. The indications of the model are tested by running a logit model on the outcomes of these dispute cases. Findings suggest potential loss of reputation increases the likelihood of observing a settlement as the bargaining power of the developing country decreases. Additional factors that affect the bargaining power are the country's income level, level of available FDI in the world and the extent to which the state faces external turmoil.