Multinational network restructuring, geopolitical exposure, and home country effects – Evidence for European MNEs

The recent slowdown in globalisation has been analysed primarily from the viewpoint of aggregate trade and investment flows. Based on a rich micro-level dataset of worldwide affiliate networks of European parents, we define an episode approach to (i) analyze the extent and direction of foreign network restructuring between 2010 and 2019, and (ii) estimate its effects on the activities of MNEs in their home-countries. We find evidence of a strong rise in contraction episodes and a substantial fall in expansion episodes in the second half of this decade. In addition, both contraction and expansion episodes have increasingly resulted in a reorientation toward geopolitically aligned countries (friendshoring) and a reduced geographic scope (nearshoring). Foreign network contraction does not increase home-country activity along the extensive or intensive domestic network margin. By contrast, foreign expansion episodes are associated with increased parent activity and a rise in the number of domestic affiliates.