Jonathan Bonnitcha, Emma Aisbett
This chapter provides an economic analysis of the substantive protections that international investment treaties (IITs) provide to established foreign investment. Section A introduces the concept of efficiency, which is central to the economic analysis of legal rules. Section B presents a basic economic analysis of IIT protections. Section C considers the economic implications of the fact that IIT protections do not apply to all investments regardless of nationality. Section D reviews the existing academic literature about the relationship between IITs and foreign direct investment flows, and argues that evidence of this relationship is less relevant in determining the economic benefits of IITs than is generally supposed. Section E considers the economic implications of IIT protections from the perspective of countries that are predominantly source or destination countries for foreign investment.