The effect of restrictive measures on cross-border investment in the European Union

Abstract

This study sheds light on the effect of restrictive policies, such as screening procedures, on mergers and acquisitions (M&A) flows into EU Member States in the period 2011–18. By implementing an augmented gravity model, we show that different restrictive measures affect cross-border investments unevenly. The presence of formal screening procedures per se does not negatively affect cross-border investments on average. The exception is M&As flows from tax havens that are negatively affected by the presence of screening procedures in the target country. Other restrictive policies such as licensing requirements, quantitative limitations, restrictions to the market access and operation of foreign companies limit M&A flows. This is particularly relevant in manufacturing and nonfinancial services where M&A flows are negatively influenced by restrictions on foreign personnel being employed in key positions, and restrictions on the establishment of branches, land acquisition or profit and capital repatriations.