Series: Working Papers. 2633.
Author: Luca Barbaglia, Marina Diakonova, Luis Díez-Catalán, Corinna Ghirelli, Alice Lia, Javier J. Pérez and Stefano Verzillo
International Economy
- International trade
- Non-financial corporations, businesses
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Abstract
Governments increasingly use trade and industrial policy to reshape where multinationals produce, yet standard measures of this geoeconomic pressure are aggregate and cannot detect origin-specific discrimination. We build a bilateral, directional index of relative protectionism that measures how restrictive a destination is toward a given origin. We combine it with bilateral geopolitical risk indices and global ownership links over the period 2010-21, and estimate a gravity-type Poisson-Pseudo Maximum Likelihood model with three-way fixed effects. Our results show that where bilateral protectionism is greater, foreign-affiliate presence is markedly smaller: a 1 percentage point increase in the index is associated with 1.3% fewer subsidiaries than that origin-destination pair would otherwise have. The main mechanism runs through an operational hostility channel (e.g. discriminatory subsidies, procurement exclusion), which outweighs an offsetting tariff-jumping channel and concentrates in non-tradable sectors, where serving the market requires local presence. The estimates show no evidence of anticipation and are robust to longer lags and sample splits. Bilateral geopolitical risk enters with the same negative sign, adding a smaller but complementary layer of fragmentation risk to the effect of geoeconomic policy.