Diplomatic relations and cross-border investments in the European Union

Giacomo Damioli () and Wildmer Daniel Gregori ()
Additional contact information
Wildmer Daniel Gregori: European Commission, https://ec.europa.eu/jrc/en

No 2021-02, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

Abstract: This study investigates the extent to which diplomatic relations affected merger and acquisition (M&A) activities in the EU during the years 2001-2019. Implementing a gravity model, we find a U-inverted relationship between diplomatic distance and M&A activities: (i) a worsening in diplomatic relations fosters M&As, but beyond a certain level (ii) an increase in diplomatic distance slows down M&A flows. While (ii) is in line with the dominant view found in the political relations literature, (i) suggests that cross-border acquisitions, in line with the internalisation theory, are a way for the investing firm to mitigate weak diplomatic relations' related issues, such as access to host markets' information and technology. These findings are confirmed especially when foreign investors target technology-intensive firms, as well as in the most recent years.

Keywords: Diplomatic relations; Cross-border M&A; EU; Foreign location choices; Gravity model (search for similar items in EconPapers)
JEL-codes: F21 F52 G34 P16 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2021-04
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published by Publications Office of the European Union, 2021

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Journal Article: Diplomatic relations and cross-border investments in the European Union (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:202102

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