Institutional quality and investment disputes in emerging and frontier economies

This study examines the relationship between institutional quality and investor-state disputes in emerging and frontier economies. Analyzing data from 40 countries for 2008–2020 using a fixed-effects negative binomial regression model, I investigate how different dimensions of institutional quality affect the occurrence of investment disputes. The results reveal a complex pattern: Stronger regulatory quality, rule of law, legal efficiency, and expropriation risk protection are associated with fewer disputes, whereas stronger property rights protection and more international investment agreements are associated with increased dispute frequency. Robustness checks suggest a more complex relationship with property rights than was initially found. These findings collectively indicate that institutional development transforms rather than simply reducing investment risk, as stronger institutions simultaneously attract investment while providing clearer grounds for legal action and raising investor expectations. These findings contribute to institutional theory and have implications for policymakers seeking to balance institutional development with dispute risk management in emerging and frontier economies. • Property rights protection has complex effects on disputes depending on institutional development stages. • International Investment Agreements (IIAs) are associated with an increased frequency of formal disputes. • MNEs reduce disputes by choosing hosts with strong regulatory quality and transparent rule of law. • MNEs navigating property rights protection in EMFEs face complex institutional implementation challenges. • MNEs can leverage International Investment Agreements as formal channels to address institutional shortcomings.