The Impact of Investment Treaty Violations on Foreign Direct Investment 407 In fact,compliance is essential to the credibility-based logic by which BITs should increase FDI,which makes the omission of compliance from existing stud- ies even more striking.We emphasize the important distinction between what Buthe and Milner usefully characterize as“ex ante'”and“expo.sr”information.24 Recall that BITs are believed to enhance host government credibility because any future treaty violations committed by the host can be enforced by investors and will require compensation by host states.Thus,knowing that their poor behavior would be punished,host governments should behave in accordance with the treaty's pro- scriptions.This ex ante account of BIT credibility,however,hinges on the assump- tion that treaty signatories will not renege in the future from the pledges enshrined in the BIT.But some governments certainly do take future,ex post,actions that harm investors and contravene their treaty obligations.Therefore,although the trea- ties promise enhanced credibility,this credibility is contingent on future behavior. Despite the importance of what happens after a treaty is signed,nearly all stud- ies of BITs focus only on the ex ante half of the story and predict that BITs should have an unconditionally positive effect on FDI into the indefinite future.Yet much of the information that is revealed ex post,long after a BIT enters into force,will be received negatively by investors.Governments may renege on some aspect of the treaty,take actions that flout their treaty obligations,or refuse to pay compen- sation to investors.These types of ex post actions provide valuable,updated infor- mation to the investment community that counteracts any positive information that the country's signing of a BIT might have conveyed ex ante.Yet even those who stress the importance of ex post information,such as Buthe and Milner,do not include in their empirical tests any measures of ex post actions that should nega- tively affect future FDI flows,such as treaty violations or investment disputes. Investors want to know whether a government has signed a BIT,but they also care about that government's behavior after any treaty is signed.BITs should pro- duce FDI benefits for governments as long as they do not do anything to disrupt the initial credibility they receive from concluding a treaty.But when a govern- ment clearly contravenes its BIT obligations,the credibility-based investment boost once provided by the treaty no longer applies.In fact,existing investors may with- draw from the country and prospective investors may look elsewhere,thus result- ing in less investment than would have occurred otherwise.This potential for BITs to actually be harmful to signatories-and result in less FDI-is novel in the lit- erature and is an important original contribution.The key is that compliance deter- mines the nature of the treaties'effects:BITs should positively affect FDI in the absence of any negative information but can negatively affect FDI if noncompli- ance is observed. How,then,do investors learn whether governments are or are not complying with the treaties?Compliance with treaty obligations can be difficult to monitor,25 24.Buthe and Milner 2009,184-86. 25.Dai2005.In fact, compliance is essential to the credibility-based logic by which BITs should increase FDI, which makes the omission of compliance from existing stud￾ies even more striking+ We emphasize the important distinction between what Büthe and Milner usefully characterize as “ex ante” and “ex post” information+ 24 Recall that BITs are believed to enhance host government credibility because any future treaty violations committed by the host can be enforced by investors and will require compensation by host states+ Thus, knowing that their poor behavior would be punished, host governments should behave in accordance with the treaty’s pro￾scriptions+ This ex ante account of BIT credibility, however, hinges on the assump￾tion that treaty signatories will not renege in the future from the pledges enshrined in the BIT+ But some governments certainly do take future, ex post, actions that harm investors and contravene their treaty obligations+ Therefore, although the trea￾ties promise enhanced credibility, this credibility is contingent on future behavior+ Despite the importance of what happens after a treaty is signed, nearly all stud￾ies of BITs focus only on the ex ante half of the story and predict that BITs should have an unconditionally positive effect on FDI into the indefinite future+ Yet much of the information that is revealed ex post, long after a BIT enters into force, will be received negatively by investors+ Governments may renege on some aspect of the treaty, take actions that flout their treaty obligations, or refuse to pay compen￾sation to investors+ These types of ex post actions provide valuable, updated infor￾mation to the investment community that counteracts any positive information that the country’s signing of a BIT might have conveyed ex ante+ Yet even those who stress the importance of ex post information, such as Büthe and Milner, do not include in their empirical tests any measures of ex post actions that should nega￾tively affect future FDI flows, such as treaty violations or investment disputes+ Investors want to know whether a government has signed a BIT, but they also care about that government’s behavior after any treaty is signed+ BITs should pro￾duce FDI benefits for governments as long as they do not do anything to disrupt the initial credibility they receive from concluding a treaty+ But when a govern￾ment clearly contravenes its BIT obligations, the credibility-based investment boost once provided by the treaty no longer applies+ In fact, existing investors may with￾draw from the country and prospective investors may look elsewhere, thus result￾ing in less investment than would have occurred otherwise+ This potential for BITs to actually be harmful to signatories—and result in less FDI—is novel in the lit￾erature and is an important original contribution+ The key is that compliance deter￾mines the nature of the treaties’ effects: BITs should positively affect FDI in the absence of any negative information but can negatively affect FDI if noncompli￾ance is observed+ How, then, do investors learn whether governments are or are not complying with the treaties? Compliance with treaty obligations can be difficult to monitor, 25 24+ Büthe and Milner 2009, 184–86+ 25+ Dai 2005+ The Impact of Investment Treaty Violations on Foreign Direct Investment 407