826 International Organization to reduce BIT concessions,39 though predictably the "cartel"has been difficult to maintain.40 The breakdown of such efforts is consistent with the competitive context we believe accounts for the proliferation of BITs over the past several years. A competitive theory of BITs has at least four observable implications.First, BITs should diffuse among host country competitors-countries that,from an investor's point of view,are closely substitutable venues for investment.It is pre- cisely these countries that should display the clearest evidence of interdependent decision making.This is a unique prediction of competitive theory.No other dif- fusion mechanism-whether hegemonic,cognitive,or ideational-makes this spe- cific prediction. Second,BITs should spread most readily to countries where the competition for capital is the most intense.Competition intensifies where the number of plausible hosts for a particular investment project is greatest.For this reason,host compe- tition for investment in extractive goods is far less intense than in light manufac- tures:while the number of countries in which bauxite mining is profitable is quite limited,almost any jurisdiction can host a Nike plant.If our competition hypoth- esis is correct,these treaties should be more prevalent where host competition is most fierce:in light manufactures rather than in primary production or extractive industries.This prediction is the exact opposite of what one might expect were BITs propelled in a"hegemonic"fashion,by the home country.From a home government's point of view,theories of obsolescing bargaining should predict the need for enforceable investment protections precisely in those industries that involve large upfront difficult-to-relocate investments.Obsolescing bargaining suggests that investors are more likely to demand treaties to protect their extractive and primary production investments,at least relative to easier-to-relocate light manufactures.42 Third,BITs should spread as the pool of available capital grows.As the pool of global capital grows,any competitive advantage(such as that conferred by a BIT) should yield a larger marginal increase in FDI inflows.Thus,the expected return per BIT should increase with the size of the investment pool,which encourages 39.CARICOM countries,for example,produced a document entitled"Guidelines for Use in the Negotiation of Bilateral Treaties"that states,among other things,that CARICOM countries should not accept any restriction on the use of performance obligations and that they should retain the right to nationalize and to"determine at the time of nationalization the quantum of compensation and the terms of payment."Caribbean Community Secretariat,reproduced in "UNCTAD,International Investment Instruments:A Compendium,"Vol.III. 40.Jamaica,a member of CARICOM when the guidelines were adopted,signed a string of BITs with important partners in the late 1980s and early 1990s,including the United Kingdom(1987):Swit- zerland(1990);the Netherlands (1991);Germany (1992);France(1993);Italy (1993);the United States (1994);Argentina(1994):and China(1994).These BITs include performance requirements and com- pensation provisions that are inconsistent with the CARICOM guidelines. 41.See Vernon 1971;and Vernon 1977. 42.Kobrin 1987 finds that manufacturing is not characterized by the inherent,structurally based and secular obsolescence that is found in the natural resource-based industries.to reduce BIT concessions, 39 though predictably the “cartel” has been difficult to maintain+ 40 The breakdown of such efforts is consistent with the competitive context we believe accounts for the proliferation of BITs over the past several years+ A competitive theory of BITs has at least four observable implications+ First, BITs should diffuse among host country competitors—countries that, from an investor’s point of view, are closely substitutable venues for investment+ It is pre￾cisely these countries that should display the clearest evidence of interdependent decision making+ This is a unique prediction of competitive theory+ No other dif￾fusion mechanism—whether hegemonic, cognitive, or ideational—makes this spe￾cific prediction+ Second, BITs should spread most readily to countries where the competition for capital is the most intense+ Competition intensifies where the number of plausible hosts for a particular investment project is greatest+ For this reason, host compe￾tition for investment in extractive goods is far less intense than in light manufac￾tures: while the number of countries in which bauxite mining is profitable is quite limited, almost any jurisdiction can host a Nike plant+ If our competition hypoth￾esis is correct, these treaties should be more prevalent where host competition is most fierce: in light manufactures rather than in primary production or extractive industries+ This prediction is the exact opposite of what one might expect were BITs propelled in a “hegemonic” fashion, by the home country+ From a home government’s point of view, theories of obsolescing bargaining should predict the need for enforceable investment protections precisely in those industries that involve large upfront difficult-to-relocate investments+ Obsolescing bargaining41 suggests that investors are more likely to demand treaties to protect their extractive and primary production investments, at least relative to easier-to-relocate light manufactures+ 42 Third, BITs should spread as the pool of available capital grows+ As the pool of global capital grows, any competitive advantage ~such as that conferred by a BIT! should yield a larger marginal increase in FDI inflows+ Thus, the expected return per BIT should increase with the size of the investment pool, which encourages 39+ CARICOM countries, for example, produced a document entitled “Guidelines for Use in the Negotiation of Bilateral Treaties” that states, among other things, that CARICOM countries should not accept any restriction on the use of performance obligations and that they should retain the right to nationalize and to “determine at the time of nationalization the quantum of compensation and the terms of payment+” Caribbean Community Secretariat, reproduced in “UNCTAD, International Investment Instruments: A Compendium,” Vol+ III+ 40+ Jamaica, a member of CARICOM when the guidelines were adopted, signed a string of BITs with important partners in the late 1980s and early 1990s, including the United Kingdom ~1987!; Swit￾zerland ~1990!; the Netherlands ~1991!; Germany ~1992!; France ~1993!; Italy ~1993!; the United States ~1994!; Argentina ~1994!; and China ~1994!+ These BITs include performance requirements and com￾pensation provisions that are inconsistent with the CARICOM guidelines+ 41+ See Vernon 1971; and Vernon 1977+ 42+ Kobrin 1987 finds that manufacturing is not characterized by the inherent, structurally based and secular obsolescence that is found in the natural resource-based industries+ 826 International Organization