Diplomatic relations and cross-border investments in the European Union

Giacomo Damioli () and Wildmer Daniel Gregori

European Journal of Political Economy, 2023, vol. 76, issue C

Abstract: This study investigates the extent to which diplomatic relations are related to cross-border merger and acquisition (M&A) activities in the European Union during the years 2001–2019. Implementing a gravity model, we find a positive relationship between diplomatic distance and M&A activities, meaning that weaker diplomatic relations are linked to increases in inward M&As. This finding holds when foreign investors target high-tech firms, are private rather than state-owned enterprises, or buy larger shares of the target companies. This evidence suggests that cross-border acquisitions could be a way for the investing firm to mitigate issues related to weak diplomatic relations, such as access to host markets’ information and technological knowledge.

Keywords: Diplomatic relations; Cross-border M&As; EU; Foreign location choices; Gravity model (search for similar items in EconPapers)
JEL-codes: F21 F52 G34 P16 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: Diplomatic relations and cross-border investments in the European Union (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:76:y:2023:i:c:s0176268022000659

DOI: 10.1016/j.ejpoleco.2022.102261

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