Foreign Direct Investment and Security: What is Actually the Problem?

This working paper seeks to address head-on the question that is often addressed only fleetingly or indirectly in discussions about FDI screening: what are we actually concerned about? More specifically, how can FDI impact state security? In order to do this, I try to construct an analytic framework that suits different types of FDI and security interests. In doing so, I build on basic legal, economic and international relations concepts. I find that FDI and security are indeed linked, but that this relationship is complex and that any assessment of the security impact of a FDI requires careful examination of the FDI at hand. I also point to the relevance of the overall strategic context and balance of power. The framework is put to the test in case study of the controversial take-over of German robotics manufacturer KUKA. In this case I conclude that there were indeed indications of security risks for the German state involved in this transaction. These were partially mitigated through action of U.S. authorities and a private contract between KUKA and its acquirer.