Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287757 
Year of Publication: 
2024
Series/Report no.: 
Kiel Working Paper No. 2265
Publisher: 
Kiel Institute for the World Economy (IfW Kiel), Kiel
Abstract: 
Openness to foreign investments is associated with risks. To mitigate these risks, many high-income countries have strengthened the control of foreign investments over the last decade in an increasing number of sectors considered critical. Investment screening distorts the market for cross-border investments in controlled sectors, which might lead to unintended economic effects. This is the first cross-country panel study to examine the economic effects of investment screening mechanisms. We combine deal-level data on cross-border mergers and acquisitions (M&A) for the period 2007-2022 with information on sectoral investment screening. Using a staggered triple difference design, we estimate a reduction of 11.7 to 16.0 percent in the number of M&A in a newly screened sector. The effects are driven by minority acquisitions and deals involving a foreign government or state-owned enterprises or US firms as investors. There is no reduction in the number of deals within the EU/EFTA, most of which are not subject to screening. The findings call policymakers' attention to weighing the benefits of national security and the economic costs of introducing investment screening.
Subjects: 
foreign direct investments
national security
M&A
investment screening
global capital allocation
geoeconomic fragmentation
deglobalization
JEL: 
F21
F52
G34
Document Type: 
Working Paper

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