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Navigating Uncertainty: Multinationals’ Investment Strategies after the Pandemic Shock

Author

Listed:
  • Chiara Bellucci

    (IMT School for Advanced Studies)

  • Armando Rungi

    (IMT School for Advanced Studies)

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.

Suggested Citation

  • Chiara Bellucci & Armando Rungi, 2023. "Navigating Uncertainty: Multinationals’ Investment Strategies after the Pandemic Shock," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(3), pages 967-996, November.
    • Handle: RePEc:spr:italej:v:9:y:2023:i:3:d:10.1007_s40797-023-00244-4
    DOI: 10.1007/s40797-023-00244-4
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