Mild deglobalization: Foreign investment screening and cross-border investment

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 2265

Classification and Topics

• Classification: Wirtschaft ; International Investment; Long-term Capital Movements ; National Security; Economic Nationalism ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
• Subject: foreign direct investments ; national security ; M&A ; investment screening ; global capital allocation ; geoeconomic fragmentation ; deglobalization

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eichenauer, Vera ; Wang, Feicheng
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW Kiel)
• (where): Kiel
• (when): 2024

Further information

• Last update: 10.03.2025, 11:42 AM CET