Bargaining BIT by BIT. State Capacity and Modelled Preferences

The international investment regime is experiencing a legitimacy crisis. One of the central questions in the debate is: To what extent can states’ dictate the outcomes of the bilateral investment treaties (BITs) they sign? Through the use of novel text-as-data analysis, this paper leverages states’ public regulatory preferences as expressed through Model BITs to examine what drives success in BIT negotiations. Building on negotiation theory, we make the case for how bargaining power in BIT negotiations is more likely to derive from expertise in states’ bargaining institutes, rather than economic resources and force. When comparing the verbatim distance within a large sample of Model BIT-concluded BIT pairs, we find that effective and meritocratic bureaucracies, and the ability to shield special interest from access to the negotiations, drive negotiating success. Our analysis also shows that economic resources, when controlling for expertise, has little or no effect on negotiation outcomes. Our findings have significant implications for how future studies of international economic negotiations should be structured, and how we think about power in economic diplomacy.