Why Mergers Make Sanctions Less Likely: How FDI Entry Mode Shapes Coercion

🔎 What Was Studied

This article asks how foreign direct investment (FDI) affects the use of economic coercion and argues that the effect depends on how FDI enters a host economy. The relationship between economic interdependence and statecraft is not monotonic because different FDI entry modes shift the relative costs of economic disruption onto different actors.

🧭 How the Argument Works

• Wholly-owned subsidiaries created via cross-border mergers and acquisitions (M&A) impose relatively greater costs on the sender country’s firms.
• Cross-border joint ventures shift relatively greater costs onto the host country and its domestic partners.
• Because the distribution of costs differs by entry mode, the incentives to impose economic sanctions also differ.

📊 How This Was Tested

• Empirical analysis focuses on U.S. sanction episodes drawn from the Threat and Imposition of Economic Sanctions (TIES) dataset.
• Statistical tests evaluate whether the share of FDI by entry mode predicts the likelihood that the United States imposes economic sanctions.

📈 Key Findings

• The effect of FDI on the use of sanctions is conditional on entry mode rather than monotonic across all FDI.
• Higher shares of FDI routed through cross-border M&A are associated with a lower likelihood that the United States imposes economic sanctions.
• Theoretical expectations imply a different pattern for joint ventures—because they place greater costs on the host—but the clearest empirical support in this analysis appears for the M&A channel.

🔥 Why It Matters

These results show that not all economic ties are equal for statecraft: the structure of foreign investment—who owns what and how—shapes the costs of coercion and thus the probability that economic sanctions are used. Policymakers and scholars should attend to FDI entry modes when assessing the restraining effects of economic interdependence.