The Rule of Law in the Global Economy: Explaining Institutional Diversity in Transborder Commercial Disputes

Abstract

If the rule of law is essential for economic exchange, then how is it possible to sustain a global economy when both "rule" and "law" are divided between nearly 200 sovereign states? This study explains variation in the institutions that firms use to overcome this dilemma of collective action. Interestingly, arrangements for commercial dispute resolution differ from other key institutional pillars of world commerce. In many times and places, private arbitral tribunals, not public courts, are the primary adjudicators of merchant controversies. In all major economies today these private judgments carry the formal authority of public law, as states have collectively delegated authority to private tribunals via a series of intergovernmental treaties and domestic laws. The result is a tripartite, hybrid system in which transnational judges' decisions are enforced in domestic courts under international law.

Two explanations for institutional variation are developed and tested. The first extends theories of rationalist institutionalism to include private governance arrangements, arguing that firms arbitrage across (partially) substitutable institutional outcomes at the domestic, intergovernmental, and transnational levels. The second, based in the existing literature on transnational commercial arbitration, argues that both firms and policymakers defer to legal expertise to guide their behavior. Institutional outcomes can therefore be explained by tracing the diffusion of relevant norms through legal fields.

The dissertation explores these ideas from the origins of the post-Industrial Revolution global economy to the present, including analysis of the negotiation of the relevant multilateral treaties and their diffusion, as well national case studies of the United States, Argentina, and China. Contra many existing accounts of commercial arbitration, broad support is found for the rationalist mechanism. Dispute settlement institutions (be they domestic, intergovernmental, or transnational) have almost never run against the interests of dominant economic groups. But at the same time, within the constraints imposed by material interests, ideational mechanisms have often been the most proximate drivers of institutional variation, unlike in other realms of global economic governance.