To Fight or Not to Fight: A Study on the Likelihood of Investor-State Disputes between Two Countries

This study investigates the importance of the relative positioning of foreign investors’ country and that of the host country in investor-state disputes. We find that investors accustomed to strong institutions at home are more likely to file a dispute against a host state with poorer institutions. Investment disputes are less likely among politically aligned nations and when the host country is dependent on the investor’s country for its exports. Familiarity, facilitated by geographically proximity and language similarity is associated with higher instances of disputes. Our findings highlight the need for a nuanced approach to foreign investment policymaking and reforms that is responsive to the relative positioning of the parties involved.