Navigating Uncertainty: Multinationals’ Investment Strategies after the Pandemic Shock

Chiara Bellucci () and Armando Rungi ()
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Chiara Bellucci: IMT School for Advanced Studies
Armando Rungi: IMT School for Advanced Studies

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2023, vol. 9, issue 3, No 5, 967-996

Abstract: Abstract Recent debates suggest that the global economy may enter a deglobalization phase accelerated after COVID-19 and the ongoing conflict in Ukraine. This study investigates the investment decisions by multinational enterprises (MNEs) in 2019–2022. We build on a unique data set of about 2 million parent-affiliate linkages to show that there has been a general reorganization of MNEs’ investment strategies since: (i) a relevant share of divestments ( $$33\%$$ 33 % ) has not been compensated by new investment decisions ( $$14\%$$ 14 % ); (ii) domestic subsidiaries are more likely to be established and less likely to be divested; (iii) the average distance of a subsidiary from a parent company has increased; (iv) the number of countries in which the average MNE operates is higher than before. Therefore, after a basic empirical strategy for foreign direct investments and gravity controls, we first confirm a higher revealed preference for domestic investment by MNEs, among others, induced by higher exposure to COVID-19. When we delve deeper into divestment choices at the firm level, we find evidence of reshoring, i.e., when a divestment abroad by a parent company in a specific industry is positively associated with a domestic investment in the same industry.

Keywords: Multinational firms; Foreign direct investments; Reshoring; Firm location choice; COVID-19; F23; F15; F61; L22; L23 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s40797-023-00244-4

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