Working Paper

Mild Deglobalization: Foreign Investment Screening and Cross-Border Investment


  • Eichenauer
  • V.Z.
  • Wang
  • F.
Publication Date

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.

Kiel Institute Expert


JEL Classification
F21, F52, G34

Key Words

  • Foreign Direct Investments
  • National Security
  • M&A
  • Investment Screening
  • Global Capital Allocation
  • Geoeconomic Fragmentation
  • Deglobalization