Does International Arbitration Enfeeble or Enhance Local Legal Institutions?

There is a critique that investment arbitration undermines or hampers the development of national legal institutions. By providing a forum for foreign investors separate and distinct from local courts, critics argue, ISDS removes any incentive for foreign investors to promote the development of local legal institutions. This chapter sets out an account of how investment arbitration might affect development of local legal institutions, in particular international commercial arbitration and, perhaps, domestic arbitration. The authors find that while both the number of investment agreements and investment arbitration proceedings to which a state is a party is negatively related to the rule of law in the state, the presence of an indicator for support for international commercial arbitration – adoption of the UNCITRAL Model Law on International Commercial Arbitration – essentially offsets that negative relationship.