The Changing Investment Regime in the European Union: an Empirical Approach

Investment agreements are some of the most contested policy areas in international relations, by both scholars and practitioners, also because of their influence on the destination of foreign investment. For several decades, the pillars of the international investment regime have been Bilateral Investment Treaties (BITs). In the European Union, foreign direct investment falls within EU common policy and an agreement was signed in 2020 for the termination of the many intra-EU bilateral investment treaties. For example, Germany alone has signed bilateral investment treaties with 14 of 27 EU member states and German investors have started at least 19 investment disputes against EU governments on the bases of these treaties, in some cases claiming over 200 million US dollars in damages. Now that these bilateral treaties are being terminated, e.g. Germany terminated 9 in 2021 alone, how do the incentives change for EU capital-exporting versus capital-importing countries, for home country investors versus host country governments? This paper contributes to the empirical literature on foreign direct investment, investment treaties and dispute resolution mechanism in the context of the European Union. The main contribution is a statical analysis of intra-EU investment agreements and investment arbitrations that tests observable implications of theories on the determinants of foreign investment allocation. The results can inform the policy debate around investment agreements in the European Union, especially concerning the economic and social consequences of political and legal decisions determining the breadth of investment protection.