By virtue of their sovereignty, states not only have the power to make laws but they also have the power to change the laws that they have made. This power to effect legal change creates challenges for both foreign investors and host country governments. On the one hand, host governments seek to assure foreigner investors, as a means to encourage inward capital flows, of the stability of the existing national legal framework for investment. They know that legal stability, predictability, and “calculability” encourage investment while legal instability discourages...
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