International investments are investments that take place across nations; i.e. savers in one nation lend funds to investors in another nation. This is reflected by the capital inflows and outflows in individual countries. The net flows are encapsulated by the capital accounts of each nation. These international investments are typically regulated by various international investment agreements.
An international investment agreement is a type of treaty between countries that address issues relevant to cross border investments. This usually is the purpose of protection, promotion and liberalization of such investments. Countries that have international investment agreement must adhere to specific standards on the treatment of foreign investments within their territory. The most common types of international investment agreements are Bilateral Investment Treaties and Preferential Trade and Investment Agreements.
Counties have international investment agreements primarily for the protection and promotion of foreign investments. They also have these for the increasing purpose of liberalization of such investments. They offer companies and individuals from contracting parties increased security and certainty under international law when they invest or set up a business in other countries party to the agreement. It is important to allow foreign investors to settle disputes with the host country through international arbitration rather than only the host country’s domestic counts.
There was a rapid expansion of international investment agreements during the past two decades. By 2007, the entire number of international investment agreements had surpassed 5500. The global international investment agreement system has become extremely complex and hard to see through. By providing additional security to investors operating in foreign countries, international investment agreements encourage companies to invest overseas.