Does divestment risk evolution of mne subsidiaries display an inverse u-shaped form?

Abstract

The current study investigates the evolutionary path of divestment risk of MNE subsidiaries in a regionally integrated area. Although descriptive statistics tend to indicate an inverse U-shaped path of divestment risk for the whole post-war era (1960~2015), including the protectionism period (1960~1980), the Kaplan-Meier survivor curve is monotonically decreasing across the three successive stages of EU integration (1981~2015). Moreover, the econometric findings exhibit that divestment risk stabilization at the deep integration stage is due to investment in product differentiation and human capital and not to factor differentials such as tariffs and wage costs. To our best knowledge, this is the first study that explores the evolution of foreign divestment risk in a gradually increasing integrated environment.