Saad Atif’s senior thesis: Exploring how legal disputes impact foreign investment

Fourth-year applied mathematics concentrators at the Harvard John A. Paulson School of Engineering and Applied Sciences (SEAS) have the option to write senior theses. These theses use mathematical, statistical or computational modeling methods to explain a phenomenon, going beyond data analysis to answer questions of mechanism and causation.

Legal Credibility as a State Variable: Dispute Exposure and the Transmission of Monetary Shocks into Private Capital Markets

Saad Atif, A.B. '26, Applied Mathematics

Advisors: Josh Lerner

• Please give a brief summary of your project.

When a company invests in a foreign country, that country often has a treaty promising to treat the investment fairly. If the government does something that harms the investment, such as nationalising a mine, revoking an operating licence, or changing regulations in a way that wipes out the investment's value, the investor can file a legal claim against the government through an international arbitration system called ISDS (Investor-State Dispute Settlement). These cases are heard by independent tribunals, not local courts, and they can result in the government paying hundreds of millions of dollars in damages. When the Federal Reserve raises interest rates, private investments (venture capital and private equity deals) tend to slow down everywhere. My thesis asks: does it slow down more in countries where foreign investors have faced a lot of legal disputes with the government? I looked at 76 countries over two decades and found that the answer is yes, substantially. Countries with a history of investor-state legal disputes see significantly less capital flow when U.S. rates go up, compared to countries with cleaner legal track records. In practical terms, a country with a heavy dispute history can see roughly 24% less capital deployed during a tightening cycle. The takeaway is that a country's legal credibility, not just its interest rates or GDP, plays a major role in whether global investment capital shows up.

• What real-world challenge does your project address?

There's a large body of research on how interest rates affect investment, and a separate literature on how legal institutions matter for capital flows. But almost no one has looked at how these two forces interact: whether a country's legal track record conditions how sensitive it is to global monetary shocks. This gap matters because policymakers in emerging markets often focus on macroeconomic fundamentals (inflation, deficits) when trying to attract investment, but may be underweighting the lasting damage that investor-state disputes do to their credibility with private capital.

• How did you come up with this idea for your final project?

I spent two summers working in the public sector in Pakistan, where I saw firsthand how sovereign credibility shapes a country's ability to attract foreign capital. Pakistan has faced several high-profile investor-state disputes, and I noticed how these seemed to linger in investors' minds long after they were resolved. When I started thinking about thesis topics with Professor Lerner, I wanted to test whether this pattern held systematically across countries i.e. whether legal disputes create a measurable "shadow" over future capital flows, especially when global financial conditions tighten.

• What was the timeline of your project?

I spent the summer and early fall of 2025 on data collection and cleaning - assembling deal-level data from S&P Capital IQ, dispute records from UNCTAD, and governance indicators from the World Bank across 76 countries and 22 years. The econometric design and core analysis ran from around October through January. February and March were spent stress-testing results, running robustness checks, rewriting the literature review, and finalising the paper for submission in March 2026.

• What part of the project proved the most challenging?

The data assembly was deceptively difficult. Merging deal-level private capital data with country-level dispute histories, governance indicators, and alliance networks across 76 countries and two decades meant constant judgment calls about how to handle missing data, how to define country-year observations, and how to ensure the panel was balanced enough to support causal inference. A single misclassification in the dispute data could shift key results, so I spent weeks auditing edge cases. 

• What part of the project did you enjoy the most?

The moment the interaction results first came through cleanly. I had a strong intuition that dispute exposure would amplify the effect of monetary tightening, but seeing it hold up across multiple specifications (and survive robustness checks) was genuinely exciting. It went from being a hunch informed by my Pakistan experience to a statistically grounded finding.

• What did you learn, or skills did you gain, through this project?

The thesis helped me develop technical skills in panel econometrics, large-scale data construction, and academic writing, but the most important thing I learned was how much research depends on discipline and judgment. I came into the project with a strong intuition, shaped in part by my experience in Pakistan, about how sovereign legal credibility affects investor behavior. What the process taught me was how to turn that intuition into a careful empirical question without overstating what the data could prove. Learning to be precise, transparent, and restrained in my claims was probably the most valuable skill I gained.