Since the 2008 financial crisis, many advanced industrialized economies, while eager to attract Foreign Direct Investment (FDI), have also implemented or tightened Investment Screening Mechanisms (ISMs), which empower governments to restrict foreign takeovers. ISMs, at the nexus between International Political Economy and International Security, are an understudied phenomenon, though they have recently gained in policy prominence worldwide as a result of emerging technological risks and new threat actors. This research note introduces the Politics and Regulation of Investment Screening Mechanisms dataset (PRISM), a newly coded dataset on ISMs in OECD countries from 2007-2021, examining the evolution of seven key features of investment screening over time. Based on this novel data, we then describe patterns in the evolution of foreign investment screening policies. Next we consider likely applications of the dataset to answer questions about the politics of investment as well as broader questions of economic exchange and institutional design in an age of great power competition – including by providing some initial statistical exercises on the relationship between Chinese FDI and R&D spending on ISM features. Finally we suggest how investment screening fits within the new arsenal of unilateral instruments of economic statecraft currently being developed by liberal democracies.

with Sophie Meunier Investment screening, the process by which national governments review whether particular foreign investment transactions generate risks to essential security, is finally having a moment in Europe. Since the European Union (EU) created its own investment screening framework in 2019, almost all Member States have reinforced, adopted, or discussed adopting a national Investment Screening Mechanism (ISM). European countries are thereby joining the growing list of advanced industrial democracies on other continents with robust investment screening regulations and practice. This article analyzes the growth of investment screening in Europe in a broader global context. First, we show how recent policy developments in Europe fit with the way governments regulate inward foreign direct investment (FDI) in other countries. Then we highlight global patterns in investment screening regulations. Third, we explain these recent developments worldwide by focusing on three factors: the rise of China as an outward investor, technological change expanding the security implications of most goods and services, and the diffusion of investment screening norms. Finally, we reflect on the consequences of this recent expansion of investment screening.

With Xander Slaski Why do governments compete for investment through tax incentives when there is strong evidence that such packages are inconsequential to the locational decisions of foreign firms? Previous scholarship has attributed pro-business policies such as investment incentives to factors including the structural power of business in an era of international capital mobility, fiscal competition generated through political decentralization or electoral pandering by political leaders. However, there is cur- rently little understanding about how individuals, in their role as decision-makers within government agencies, form beliefs over how to best attract investment. Building on insights from the bureaucratic politics and behavioral economics litera- tures, we anticipate investment promotion professionals are more likely to view investment incentives as effective attraction tools when they have limited previous experience in the private sector, when they work for investment promotion agen- cies that are more integrated into the national bureaucracy, and when employee performance is evaluated based on deals closed. We test these expectations with a conjoint survey experiment of investment promotion professionals designed to uncover respondents’ beliefs over the relative importance of different components of the investment environment to firms’ locational decisions, and find substantial support for our expectations.

With Xander Slaski Governments frequently offer tax incentives to induce localized investments. This is puzzling because previous research finds tax incentives are rarely decisive factors in firms’ locational decision-making. Some argue incentives reflect hyper capital mobility, which strengthens multinational enterprises’ bargaining leverage vis-à-vis governments that wish to attract investment. Others emphasize the domestic political institutions and electoral considerations that incentivize politicians to publicly court investors. We argue that firms’ leverage over governments stems from investment characteristics associated with governments’ broader development objectives. We test our argument on deal-level data on investment incentives in Latin America from 2010 to 2017. Our results indicate firms are more likely to receive incentives when they are already embedded in local markets and when they exhibit characteristics associated with low ex post mobility. These results challenge widely held beliefs over what provides firms political power in an age of globalization, and suggest that governments use incentives primarily to fulfill their economic and political objectives rather than because global- ization destroys states’ capacity to tax mobile capital.

with Emily Kilcrease

The politics of investment review for national security purposes points to three central issues. First, a growing number of high-income countries increasingly view large volumes of consumer data as a potential vulnerability that threat actors can exploit. Second, sensitive personal data can create multiple national security concerns that governments must contend with. Third, it is important to contextualize the issue of data and digital tech in a broader regulatory regime. This article addresses these three issues and points to the geopolitics that underscore an emerging Biden agenda.

The past three decades have witnessed a spectacular evolution in policies toward foreign direct investment (FDI). Whose interests do these policy innovations reflect? While existing theory suggests popular pressure drives openness, I argue reforms occur when shifts in financial access change local economic elites policy preferences toward FDI. When large domestic firms no longer have access to cheap credit through political connections, liquidity constraints outweigh firms’ preferences to exclude foreigners. Economic elites then pressure governments to pursue liberal FDI policy environments. Using a combination of measures of FDI policy for up to 166 countries from 1973-2015, I find increases in financial constraints are robustly associated with decreases in foreign equity restrictions and this relationship is strongest when domestic political institutions favor business interests. A financing constraints explanation of FDI policy reform has important implications for explanations of policy change, theories of business power amid increased interdependence, and expectations over the distributive effects of globalization.

What factors generate financial fragility in open economies? Existing research assumes that the development of these conditions is more likely to emerge under some configurations of domestic economic and political attributes. We examine the development of financial fragility through the ontological lens of the new interdependence approach, which assumes that global factors can be as important as local factors in generating outcomes. We analyze global financial conditions from 1978 to 2009 and argue that contemporary global finance is an oscillating system that generates boom and bust capital flow cycles. The phases of this cycle are a consequence of the scale of US net borrowing on global markets: when the United States is a large net importer of foreign capital, other economies struggle to attract foreign capital and are substantially less likely to develop fragile financial positions; when US net capital imports fall, other economies receive an abundance of foreign capital, and financial fragility becomes more likely. In contrast, we find little evidence that cross-national variation in political institutions or financial systems explains why fragility develops, although some regional interdependencies are evident. We conclude that global conditions drive the probability of crises occurring someplace in the system, while local outcomes appear to be idiosyncratic.

Under what conditions can governments use international commitments such as Bilateral Investment Treaties (BITs) to attract foreign direct investment (FDI)? Although numerous studies have attempted to answer this question, none considers how investment treaties may have heterogeneous affects across industry. I argue BIT effect is strongest when the obsolescing bargaining problem between firms and governments is most protracted, namely, when FDI relies on strong contracts between firms and states. Using a time series cross-sectional data set of 114 developing countries from 1985 to 2011, I find BITs are associated with increases in infrastructure investment, an industry particularly reliant on the sanctity of government contracts, but not with total FDI inflows. Moreover, BITs with strong arbitration provisions display the strongest statistical effect on infrastructure investment, while BITs that do not provide investors with such protections are not associated with increased investment. My results have implications for both scholarship on the relationship between governments and multinational firms as well as for the study of international institutions more broadly. To properly ascertain the effects of international treaties and institutions, scholars should consider not just whether institutions constrain or inform—or matter at all—but also the extent to which the targets of institutions have heterogeneous responses to them.

Although the subprime crisis regenerated interest in and stimulated debate about how to study the politics of global finance, it has not sparked the development of new approaches to International Political Economy (IPE), which remains firmly rooted in actor-centered models. We develop an alternative network-based approach that shifts the analytical focus to the relations between actors. We first depict the contemporary global financial system as a network, with a particular focus on its hierarchical structure. We then explore key characteristics of this global financial network, including how the hierarchic network structure shapes the dynamics of financial contagion and the source and persistence of power. Throughout, we strive to relate existing research to our network approach in order to highlight exactly where this approach accommodates, where it extends, and where it challenges existing knowledge generated by actor-centered models. We conclude by suggesting that a network approach enables us to construct a systemic IPE that is theoretically and empirically pluralist.

Why do government open their economies to multinational firms? Some argue democratic forces lead to openness, but many citizen groups view multinational business with suspicion. Moreover, investment policies are complex and often countervailing – governments often simultaneously liberalize some components of FDI rules while tightening others. In Merging Interests, Sarah Bauerle Danzman demonstrates that large domestic firms often drive foreign investment policy. Firm preferences over openness to foreign equity investors depend on domestic financing conditions. Because MNE entry comes with substantial risks, well-connected domestic firms prefer to limit access to local markets when the costs of debt financing are relatively low. When local environments make debt financing increasingly expensive, firms are more willing to dismantle restrictive investment policies in order to overcome liquidity constraints. Consequently, governments liberalize FDI to provide large domestic firms with access to global financing channels. Evidence includes quantitative analysis and case studies of Malaysia and Indonesia.

in Yearbook on International Investment Law and Policy 2020, edited by Lisa Laches, Lise Johnson, and Jesse Coleman. Oxford University Press, pp. 5-18.

in The Uses and Abuses of Weaponized Interdependence, edited by Daniel Drezner, Henry Farrell, and Abraham Newman. Washington, D.C.: Brookings, pp. 257-272.

with Geoffrey Gertz in International Trade, Investment, and the Sustainable Development Goals edited by Cosimo Beverelli, Jurgen Kurtz, and Damian Raess. Cambridge, UK: Cambridge University Press, pp. 140- 174.

This chapter provides a synthetic and critical review of political economy research related to bilateral investment treaties (BITs) and their effect on patterns of FDI flows. BITs arose in the aftermath of decolonization and are now the primary instrument of international diplomacy and law that regulates rules regarding the treatment of foreign investors in domestic jurisdictions. Fundamentally, these treaties represent attempts to overcome hold up problems that inhibit investment by committing host governments to a list of protections for foreign firms and providing an arbitration mechanism through which to adjudicate and remedy any investor-state disputes. As empirical research has largely called into question the size of the positive effects of BITs on investment, and has uncovered potentially large economic, political, and reputational costs of such treaties, many scholars have come to see BITs as deeply problematic legal tools that grant far reaching rights to foreign investors at the expense of governments and local populations. At the same time, increasing availability of FDI data disaggregated by industry and balance sheet components, as well as new tools for surveying multinational investors, has the potential to ascertain more precisely the conditions under which BITs may be useful and even necessary instruments to attract development-oriented investment.

Review Symposium of Power Grab: Political Survival through Extractive Resource Nationalization (Cambridge University Press) by Paasha Mahdavi.

with Emily Kilcrease Recent congressional efforts to establish new authorities to regulate out- bound investment have revived a long-simmering debate in Washington about the economic and security risks associated with US investment in China. While the major proposals for regulating outbound investments were ultimately dropped from the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, the conversation in Washington is far from over. The stakes for rethinking the investment relationship between the United States and China are high. China is the world’s second-largest economy and second-largest destination for foreign investment, after the United States. US firms have $118 billion in investments there. While foreign companies are increasingly pessimistic about the geopolitical risks associated with operating in China, the majority intend to stay in the market. Yet, policy- makers have begun to question whether the benefits of free capital flows outweigh concerns that certain investments run counter to US economic and national security interests. This working paper seeks to refine the conversation around outbound investment screening by articulating the clearest policy objectives for such a new authority, as well as offering concrete proposals for how to scope and structure a balanced approach to national security-related outbound investment controls.

Testimony before the Senate Committee on Banking, Housing, and Urban Affairs Hearing on “Examining Outbound Investment”

with Jeremy Friedman and David Lane HBS No. N9-722-020. Boston, MA: Harvard Business School Publishing.