Moving Out: Geoeconomic Policy and the Relocation of Foreign Affiliates

Luca Barbaglia, Marina Diakonova, Luis Díez-Catalán, Corinna Ghirelli, Alice Lia, Javier J. Pérez and Stefano Verzillo
Additional contact information
Luca Barbaglia: Joint Research Centre, European Commission
Marina Diakonova: Banco de España
Luis Díez-Catalán: Banco de España
Corinna Ghirelli: Banco de España
Alice Lia: Banco de España
Javier J. Pérez: Banco de España
Stefano Verzillo: Joint Research Centre, European Commission

No 2633, Working Papers from Banco de España

Abstract: Governments increasingly use trade and industrial policy to reshape where multinationals produce, yet standard measures of this geoeconomic pressure are aggregate and cannot detect origin-specific discrimination. We build a bilateral, directional index of relative protectionism that measures how restrictive a destination is toward a given origin. We combine it with bilateral geopolitical risk indices and global ownership links over the period 2010-21, and estimate a gravity-type Poisson-Pseudo Maximum Likelihood model with three-way fixed effects. Our results show that where bilateral protectionism is greater, foreign-affiliate presence is markedly smaller: a 1 percentage point increase in the index is associated with 1.3% fewer subsidiaries than that origin-destination pair would otherwise have. The main mechanism runs through an operational hostility channel (e.g. discriminatory subsidies, procurement exclusion), which outweighs an offsetting tariff-jumping channel and concentrates in non-tradable sectors, where serving the market requires local presence. The estimates show no evidence of anticipation and are robust to longer lags and sample splits. Bilateral geopolitical risk enters with the same negative sign, adding a smaller but complementary layer of fragmentation risk to the effect of geoeconomic policy.

Keywords: geoeconomic policy; multinational firms; global value chains; firm location; foreign direct investment; trade and industrial policy; economic fragmentation; international production networks; geopolitical risk (search for similar items in EconPapers)
JEL-codes: D22 F13 F15 F23 F60 H25 L23 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2026-10
New Economics Papers: this item is included in nep-bec
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2633e

DOI: 10.53479/44485

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