Coming to a Screen Near You: An Investigation into the Recent Proliferation of FDI Screening Mechanisms in Canada, the US, Australia, and the EU

Abstract

Foreign direct investment (FDI) has been essential to the rise of globalization and economic growth. Yet in recent years many developed economies have moved to create or tighten investment screening mechanisms (ISM), which are policy instruments through which governments control incoming investments, especially on a national security basis. What explains the recent proliferation of foreign direct investment screening mechanisms, and why do some countries choose to use them while others do not? Investigating Canada, the US, Australia and the EU, this thesis determines that the recent proliferation of foreign direct investment screening mechanisms does not necessarily mean that countries have become more restrictive, but that foreign investment controls are favoring more regionalised strategies in response to certain investors and rising investment risks. Based on a qualitative assessment of the embryonic literature, I find that the motivating reasons behind this conclusion is a result of the convergence of three factors, 1) the unprecedented nature of Chinese direct investment, 2) the changes in political tolerance for foreign direct investment, and 3) economic globalization backlash. Overall, the rise of FDI screening mechanisms shows how governments can add a layer of bureaucracy to existing foreign direct investment policy tools – it should not be received as intentionally blocking the free flow of capital. Rather, the opportunity to evaluate a foreign direct investment is, in certain circumstances, a more precise and sovereign way to monitor its purpose and basis for entering a host economy. In consideration of the COVID-19 pandemic, the rise of foreign investment controls can be reinterpreted as a fairer balance between remaining open to foreign investment and the rights of a state to protect harmful investments or investors from entering their economy – it largely depends on the political context within a country, its preferred method of investment statecraft and the time period.