Credibility Without Formal Commitments: How Market Reputation Reshapes BITs

Under what circumstances do states reconsider their formal commitments to international cooperation? This paper examines how shifts in market reputation shape treaty renegotiation and termination in the context of bilateral investment treaties (BITs). Analyzing 2,620 BITs across 178 countries over 8 years, I demonstrate that states are more likely to renegotiate and withdraw from treaties when their reputational standing in global business climate indicators improves. Enhanced market reputation reduces the perceived costs of exit, empowering states to demand revisions or abandon agreements when bargaining fails. The study further reveals that the strength of treaty lock-in provisions moderates this relationship. Specifically, states with stronger reputational gains are more likely to challenge BITs with shorter lock-in periods, as these treaties impose fewer long-term constraints. In contrast, treaties with extended lock-in dampen the effect of reputation improvements, delaying host states’ ability to capitalize on their enhanced reputation. These findings advance our understanding of international cooperation by highlighting the interplay between informal constraints and formal commitment and the importance of institutional design for regime stability. They also demonstrate how global markets can shift power to new sets of states.