404 International Organization incentives to renege on the contract.It is therefore difficult for investors to deter- mine ex ante a host government's true,long-term commitment to foreign partici- pation in the domestic market. Existing Research on the FDI Effects of BITs BITs reassure fearful investors in two ways.5 First,signing BITs is a way for host governments to signal their true intention to refrain from interfering with foreign investment.According to this "signaling"logic,negotiating a BIT is a way for an investment-seeking government to convey its seriousness about protecting inward investment.Governments that sign multiple treaties may be able to send a more effective signal,and this accumulation of numerous treaties demonstrates a stronger general commitment to protect investment and to promote a healthy investment climate for all foreign investors.To be effective,however,the signals must be "costly,"or informative enough to differentiate committed liberalizers from gov- ernments with other intentions.The major worry for investors is that an initial signal to protect investment may turn out to be"cheap talk,"if a government later changes course and behaves in ways that are hostile toward investment. A second line of argument is that BITs increase the credibility of host states' promises to abide by the terms of a contract,which then should stimulate greater inward FDI.BITs provide significant protections to foreign investors because they include provisions on national treatment,most-favored nation status,the ability to repatriate profits,and appropriate compensation in the event of a taking.Most importantly,these promises are made credible due to investor-state dispute settle- ment clauses that allow aggrieved investors to challenge via international arbitra- tion any policies of host governments that violate these BIT commitments.3 A government that violates its treaty commitments and is challenged by investors through international arbitration would suffer direct financial costs of contesting the litigation,reputational costs associated with being a defendant,and the pay- ment of a potentially sizable arbitration award.Therefore,a BIT signatory is likely to uphold the treaty's terms because of the prospect of these self-inflicted costs, which in turn should reassure investors,who then are more likely to invest in the country.Many scholars utilize some type of credibility-based logic to argue that BITs should lead greater FDI to flow into signatories.Several studies provide 5.For an excellent review and discussion of the arguments that have been applied to BITs,see Buthe and Milner 2009. 6.Neumayer and Spess 2005.Also see Egger and Pfaffermayr 2004;Haftel 2010;and Salacuse and Sullivan 2005. 7.For recent discussions of the contents of bilateral investment treaties,see Dolzer and Schreuer 2008;and Muchlinski 2009. 8.Allee and Peinhardt 2010. 9.See Bubb and Rose-Ackerman 2007;Buithe and Milner 2009;Egger and Pfaffermayr 2004;Haf- tel 2010:Hallward-Driemeier 2003;Kerner 2009;and Salacuse and Sullivan 2005.For a contrasting view,see Yackee 2009.incentives to renege on the contract+ It is therefore difficult for investors to deter￾mine ex ante a host government’s true, long-term commitment to foreign partici￾pation in the domestic market+ Existing Research on the FDI Effects of BITs BITs reassure fearful investors in two ways+ 5 First, signing BITs is a way for host governments to signal their true intention to refrain from interfering with foreign investment+ According to this “signaling” logic, negotiating a BIT is a way for an investment-seeking government to convey its seriousness about protecting inward investment+ 6 Governments that sign multiple treaties may be able to send a more effective signal, and this accumulation of numerous treaties demonstrates a stronger general commitment to protect investment and to promote a healthy investment climate for all foreign investors+ To be effective, however, the signals must be “costly,” or informative enough to differentiate committed liberalizers from gov￾ernments with other intentions+ The major worry for investors is that an initial signal to protect investment may turn out to be “cheap talk,” if a government later changes course and behaves in ways that are hostile toward investment+ A second line of argument is that BITs increase the credibility of host states’ promises to abide by the terms of a contract, which then should stimulate greater inward FDI+ BITs provide significant protections to foreign investors because they include provisions on national treatment, most-favored nation status, the ability to repatriate profits, and appropriate compensation in the event of a taking+ 7 Most importantly, these promises are made credible due to investor-state dispute settle￾ment clauses that allow aggrieved investors to challenge via international arbitra￾tion any policies of host governments that violate these BIT commitments+ 8 A government that violates its treaty commitments and is challenged by investors through international arbitration would suffer direct financial costs of contesting the litigation, reputational costs associated with being a defendant, and the pay￾ment of a potentially sizable arbitration award+ Therefore, a BIT signatory is likely to uphold the treaty’s terms because of the prospect of these self-inflicted costs, which in turn should reassure investors, who then are more likely to invest in the country+ Many scholars utilize some type of credibility-based logic to argue that BITs should lead greater FDI to flow into signatories+ 9 Several studies provide 5+ For an excellent review and discussion of the arguments that have been applied to BITs, see Büthe and Milner 2009+ 6+ Neumayer and Spess 2005+ Also see Egger and Pfaffermayr 2004; Haftel 2010; and Salacuse and Sullivan 2005+ 7+ For recent discussions of the contents of bilateral investment treaties, see Dolzer and Schreuer 2008; and Muchlinski 2009+ 8+ Allee and Peinhardt 2010+ 9+ See Bubb and Rose-Ackerman 2007; Büthe and Milner 2009; Egger and Pfaffermayr 2004; Haf￾tel 2010; Hallward-Driemeier 2003; Kerner 2009; and Salacuse and Sullivan 2005+ For a contrasting view, see Yackee 2009+ 404 International Organization