Investor‐state dispute settlement and multinational firm behavior

This paper shows that investor-state dispute settlements (ISDS) make multinational firms more aggressive by increasing cost-reducing investments with the aim to enlarge potential compensation an ISDS provision may offer. While a larger investment reduces market distortion, it will also compensations larger. Consequently, foreign investor do not imply zero-sum game. decrease domestic welfare, in particular if leads establishment of export platform, and we find even global welfare decline.