Navigating Uncertainty : Multinationals’ Investment Strategies after the Pandemic Shock

Recent debates suggest that the global economy may enter a deglobalization phase. The COVID-19 pandemic and the conflict in Ukraine are unprecedented global shocks that question the levels of global economic integration reached so far. This study investigates the investment decisions multinational enterprises (MNEs) made in 2019-2022. We build on a unique dataset containing information on about 2 million parent-affiliate linkages to show that there has been a general reorganization of the investment strategies by MNEs with an important share of divestments (33%) that has not been entirely compensated by new investment decisions (14%). Therefore, after a basic empirical strategy that employs a gravity model for foreign direct investments at the aggregate and firm levels, we examine reshoring decisions and correlations with COVID-19 risk. Higher exposure to COVID-19 correlates with more domestic investment decisions, suggesting a latent reshoring strategy at the country level. Reshoring patterns are confirmed when we delve deeper into divestment choices at the parent level, i.e., foreign divestment decisions are positively associated with more domestic investment choices by MNEs. Notably, MNEs are less likely to divest from affiliates integrated into supply chains