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Unbundling the State: Legal Development in an Era of Global, Private Governance

Published online by Cambridge University Press:  07 December 2023

Michael O. Allen Open the ORCID record for Michael O. Allen [Opens in a new window]
Michael O. Allen*
Affiliation:
Department of Government, Harvard University, Cambridge, MA, USA
*
Email: michael_allen@fas.harvard.edu
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Abstract

What happens to a public, domestic institution when its authority is delegated to a privately run, transnational institution? I argue that outsourcing traditionally national legal responsibilities to transnational bodies can lead to the stagnation of domestic institutional capacity. I examine this through a study of international commercial arbitration (ICA), a widely used system of cross-border commercial dispute resolution. I argue that ICA provides commercial actors an “exit option” from weak public institutions, reducing pressure on the state to invest in capacity-enhancing reform. I find that the enactment of strong protections for ICA leads to the gradual erosion of the capacity of domestic legal institutions, particularly in countries with already weak legal systems. I test the mechanism driving this dynamic using dispute data from the International Chamber of Commerce. I find that pro-arbitration laws increase the use of international arbitration by national firms, suggesting that firms use ICA as an escape from domestic institutions. This article contributes to debates on globalization and development as well as work on the second-order effects of global governance institutions.

Keywords

International political economyprivate governanceinternational arbitrationrule of law
Type
Research Article
Information
International Organization , Volume 77 , Issue 4 , Fall 2023 , pp. 754 - 788
Copyright
Copyright © The Author(s), 2023. Published by Cambridge University Press on behalf of The IO Foundation

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