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Mild deglobalization: Foreign investment screening and cross-border investment

Author

Listed:
  • Eichenauer, Vera
  • Wang, Feicheng
Abstract
Openness to foreign investments is associated with risks. To mitigate these risks, many high-income countries have strengthened the control of foreign investments over the last decade in an increasing number of sectors considered critical. Investment screening distorts the market for cross-border investments in controlled sectors, which might lead to unintended economic effects. This is the first cross-country panel study to examine the economic effects of investment screening mechanisms. We combine deal-level data on cross-border mergers and acquisitions (M&A) for the period 2007-2022 with information on sectoral investment screening. Using a staggered triple difference design, we estimate a reduction of 11.7 to 16.0 percent in the number of M&A in a newly screened sector. The effects are driven by minority acquisitions and deals involving a foreign government or state-owned enterprises or US firms as investors. There is no reduction in the number of deals within the EU/EFTA, most of which are not subject to screening. The findings call policymakers' attention to weighing the benefits of national security and the economic costs of introducing investment screening.

Suggested Citation

  • Eichenauer, Vera & Wang, Feicheng, 2024. "Mild deglobalization: Foreign investment screening and cross-border investment," Kiel Working Papers 2265, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:287757
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    File URL: https://www.econstor.eu/bitstream/10419/287757/1/1884464165.pdf
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    More about this item

    Keywords

    foreign direct investments; national security; M&A; investment screening; global capital allocation; geoeconomic fragmentation; deglobalization;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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