In this paper I argue that the growth of ICA has eroded the link between domestic rule of law and foreign direct investment by offering an extra-judicial, delocalized system of dispute resolution. Using a dataset tracking implementation of the UN Commission on International Trade Law’s 1985 Model Law on International Commercial Arbitration, I find that while direct investors are attracted to states with stronger rule of law institutions, this association is negated by the enactment of arbitration-friendly laws. I find that ICA thus serves as a substitute for local courts.
How do local development incentives shift when authority traditionally rooted in domestic state institutions has been delegated to transnational institutions? In this paper, I argue that international commercial arbitration—a private, transnational system of cross-border commercial dispute resolution—provides key interest groups that would otherwise lobby for rule of law reforms an exit option from weak local institutions which in turn reduces pressure on the state to invest in needed rule of law reforms. I test this proposition using semiparametric analysis, finding that the enactment of strong domestic protections for ICA leads to the gradual erosion of the quality of local legal institutions. The effect is most pronounced in weak rule of law states.
I argue that the growth of enforcement of the United States Foreign Corrupt Practices Act (FCPA), which criminalizes bribery of foreign officials in exchange for a business advantage, has increased the sensitivity of foreign investors to the risks of investing in corrupt regimes. I find that FCPA enforcement has a negative effect on the intensive margin of US FDI (which I measure as aggregate employment in US-owned foreign affiliates) but little to no effect on the extensive margin (the number of US-owned foreign affiliates).
Constructing International Commercial Arbitration: Traders, Lawyers and the Competition for Authority Over Global Commerce
My dissertation focuses on the privatization of international commercial dispute resolution. Specifically, I examine the creation, diffusion and consequences of international commercial arbitration (ICA). Unlike litigation in public courts, ICA is a private system of dispute resolution rooted in contract in which the parties have near complete freedom to design the process to fit their needs including the choice of venue, the relevant rules of law and the selection of arbitrators. Modern ICA laws allow for the enforcement arbitration agreements and awards with increasingly narrow opportunities for judicial oversight. How did this system come about? Why have states around the world ceded such authority to private arbitrators? And what effect does the growth of arbitration have on states’ abilities to regulate foreign commerce?
I utilize extensive archival materials to trace the origins of the transnational movement behind ICA from the late 19th century to the present. I show how what began as informal, peer-driven dispute resolution process designed as an escape from public courts and the legal profession came to be dominated by the legal profession. Transnational business and legal professionals won the support of international organizations including the League of Nations and United Nations to assist in the diffusion of legal protections for ICA around the globe through the promulgation of multilateral treaties and model laws. I present a novel theory of institutional change that helps account for the out-sized role of private, professional groups in the construction of transnational legal regimes such as ICA. Beyond providing know-how and expertise to the process of institutional design, I argue that expert and professional groups seek to enhance their professional prestige and workload by shaping institutions in order to cement their own authority over the institution’s mandate.
Finally, I use data on the enactment of legislation based on the UN Commission on International Trade Law’s Model Law on Commercial Arbitration as well as case, roster and professional membership data from leading arbitration centers and professional institutions to examine the effect of ICA on the authority of domestic courts. I show the ICA serves as a systemic substitute for local courts in regard to foreign direct investment, negating the well-known sensitivity of foreign direct investors to the quality of local legal institutions. The growth of ICA the indirect effect of siphoning talent out of the local legal profession and reducing pressure from local and international commercial interest groups for state investment in progressive rule of law reforms.
Works in Progress
- Sources of Gender and National Bias in the Selection of Arbitrators at the International Chamber of Commerce
For my dissertation research, I collected nationality data on the universe of arbitrators appointed to serve on all arbitration panels registered with the International Chamber of Commerce from 2016 to the present. I am now in the process of improving and expanding this dataset and collecting detailed demographic, educational, and professional data to examine trends in the evolution of the international arbitration profession.
- Populism and the Termination of Bilateral Investment Treaties (with Jimena Valdez, London School of Economics and Political Science)
- Crisis, Expanding Mandates and the Popular Legitimacy of Central Bank Independence (with Aditi Sahasrabuddhe, Wellesley College)
We are in the process of designing and deploying a nationally representative survey in the United States to examine the political determinants of attitudes towards central bank independence, focusing on the effects of recent expansions in central bank mandates and activities seen in the US and around the world since the 2008 financial crisis. This research is supported by the Institute for Humane Studies at George Mason University.