Examining Newfound Tolerance for International Arbitration in the Developing World: An Illustration of the Nexus between Law and Development

Abstract

This paper seeks to correlate low FDI inflows in many developing countries and their prejudice against international arbitration. Many developing countries lack the capital needed to finance their many projects. This has impacted heavily upon the ability of these countries to realize their economic goals, highlighting the need for FDI. Foreign investors will often undertake the financing of these projects in return for a share of the proceeds. One condition for providing finance, however, is often the need for a stable investment climate. Sources reveal that one essential feature is a legal system, which is conducive to enforceable and neutral dispute settlement. International arbitration is currently the only viable option. Nonetheless, many developing countries are intolerant of this dispute settlement mechanism. This paper contains five chapters. It identifies the main usage of international arbitration in the South, concluding that it is mainly used to settle investment disputes. It considers why countries dislike arbitration, highlighting that notwithstanding past malice; embracing it will lead them to realize their full commercial potential. It highlights that a legal system or one or more of its components, which is not conducive to international arbitration, has been known to create problems in promoting this dispute settlement mechanism. Thus the paper argues that a country’s legal system must be conducive to international arbitration, if the latter is to be effectively utilized in the developing world. There are many benefits associated with the acceptance of international arbitration. Foremost is the ability to attract greater levels of FDI, which will contribute to the economic development plan of the host country; but the fear of bias has to be displaced if any benefits are to be realized. Thus, this dissertation concludes that, bias against international arbitration can indeed hinder the ability of the South to effectively participate in the global economy.