Navigating Uncertainty: Multinationals’ Investment Strategies after the Pandemic Shock

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%) has not been compensated by new investment decisions (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.