Behind the Screen: Understanding National Support for a Foreign Investment Screening Mechanism in the European Union

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Journal Article
What determines national preferences for institutionalizing FDI screening? Over the past
decade, advanced economies worldwide have tightened their national investment screening
mechanisms (ISMs) for foreign direct investment (FDI). In March 2019, the European Union
(EU) adopted its first common FDI screening framework. Based on extensive interviews with
high-level EU and country officials involved in the negotiation process, and using a unique
measure of national support for the EU-wide ISM created through the first-ever elite survey on
this subject matter, we find that countries with higher technological levels were more supportive
of FDI screening due to concerns over unreciprocated technological transfer. We also find
sector-dependent effects of Chinese FDI on country-level support for FDI screening: Countries
with high levels of Chinese FDI in strategic sectors are more likely to support the EU ISM, while
those with high levels of Chinese investment in low-tech sectors tend to oppose screening. Our
overall findings suggest that EU investment screening, and national-level screening in general,
might become more restrictive in the future, especially in light of the COVID-19 pandemic.
Review of International Organizations