Contingent Credibility:The Impact of Investment Treaty Violations on Foreign Direct Investment Todd Allee and Clint Peinhardt Abstract During the past few decades governments have signed nearly 2,700 bilateral investment treaties (BITs)with one another in an attempt to attract greater levels of foreign direct investment(FDI).By signing BITs,which contain strong enforcement provisions,investment-seeking governments are thought to more cred- ibly commit to protecting whatever FDI they receive,which in turn should lead to increased confidence among investors and ultimately greater FDI inflows.Our unique argument is that the ability of BITs to increase FDI is contingent on the subsequent good behavior of the governments who sign them.BITs should increase FDI only if governments actually follow through on their BIT commitments;that is,if they com- ply with the treaties.BITs allow investors to pursue alleged treaty violations through arbitration venues like the International Centre for the Settlement of Investment Dis- putes (ICSID),a heavily utilized and widely observed arbitral institution that is part of the World Bank.Being taken before ICSID,then,conveys negative information about a host country's behavior to the broader investment community,which could result in a sizeable loss of future FDI into that country.We test these contingent effects of BITs using cross-sectional,time-series analyses on all non-OECD coun- tries during a period spanning 1984-2007.We find that BITs do increase FDI into countries that sign them,but only if those countries are not subsequently challenged before ICSID.On the other hand,governments suffer notable losses of FDI when they are taken before ICSID and suffer even greater losses when they lose an ICSID dispute. For developing countries,signing bilateral investment treaties (BITs)has become an attractive way to try to stimulate greater inward foreign direct investment(FDI). By granting numerous substantive rights to investors and allowing for inter- national arbitration of any disputes that arise,signatory governments signal their For helpful comments on this article we thank Tana Johnson,Kris Miler,Irfan Nooruddin,Stephanie Rickard,seminar participants at Ohio State University and Texas A&M University,as well as panel participants at the 2008 American Political Science Association conference,the 2d Annual Conference on the Political Economy of International Organizations,and the 2009 Midwest Political Science Asso- ciation conference. International Organization 65,Summer 2011,pp.401-32 2011 by The IO Foundation. do:10.1017/S0020818311000099Contingent Credibility: The Impact of Investment Treaty Violations on Foreign Direct Investment Todd Allee and Clint Peinhardt Abstract During the past few decades governments have signed nearly 2,700 bilateral investment treaties ~BITs! with one another in an attempt to attract greater levels of foreign direct investment ~FDI!+ By signing BITs, which contain strong enforcement provisions, investment-seeking governments are thought to more cred￾ibly commit to protecting whatever FDI they receive, which in turn should lead to increased confidence among investors and ultimately greater FDI inflows+ Our unique argument is that the ability of BITs to increase FDI is contingent on the subsequent good behavior of the governments who sign them+ BITs should increase FDI only if governments actually follow through on their BIT commitments; that is, if they com￾ply with the treaties+ BITs allow investors to pursue alleged treaty violations through arbitration venues like the International Centre for the Settlement of Investment Dis￾putes ~ICSID!, a heavily utilized and widely observed arbitral institution that is part of the World Bank+ Being taken before ICSID, then, conveys negative information about a host country’s behavior to the broader investment community, which could result in a sizeable loss of future FDI into that country+ We test these contingent effects of BITs using cross-sectional, time-series analyses on all non-OECD coun￾tries during a period spanning 1984–2007+ We find that BITs do increase FDI into countries that sign them, but only if those countries are not subsequently challenged before ICSID+ On the other hand, governments suffer notable losses of FDI when they are taken before ICSID and suffer even greater losses when they lose an ICSID dispute+ For developing countries, signing bilateral investment treaties ~BITs! has become an attractive way to try to stimulate greater inward foreign direct investment ~FDI!+ By granting numerous substantive rights to investors and allowing for inter￾national arbitration of any disputes that arise, signatory governments signal their For helpful comments on this article we thank Tana Johnson, Kris Miler, Irfan Nooruddin, Stephanie Rickard, seminar participants at Ohio State University and Texas A&M University, as well as panel participants at the 2008 American Political Science Association conference, the 2d Annual Conference on the Political Economy of International Organizations, and the 2009 Midwest Political Science Asso￾ciation conference+ International Organization 65, Summer 2011, pp+ 401–32 © 2011 by The IO Foundation+ doi:10+10170S0020818311000099