This paper econometrically investigates the effect of Bilateral Investment Treaties (BITs) on Foreign Direct Investment (FDI) into five South Asian countries. It employs an extensive panel data model to conclude that the BITs signed by Bangladesh, India, Pakistan, Nepal and Sri Lanka between 1970 and 2014 have not led to an increase in FDI--a result that is later established on theoretical grounds as well. When this conclusion is juxtaposed with compelling literature on the BIT’s deleterious impact on domestic sovereignty and independent policy space, the scope for a pareto superior outcome is envisaged; and this outcome is shown to be a Nash equilibrium using an augmented prisoners’ dilemma model with a provision for mutual cooperation.