Multinational Production and Global Shock Propagation during the Great Recession

Haishi Li

No 10349, CESifo Working Paper Series from CESifo

Abstract: I investigate multinational production (MP) patterns during the Great Recession and their impact on trade and shock transmissions across countries. Addressing the “Multinationals’ Resilience Puzzle” – which questions why multinational enterprise (MNE) sales were more resilient than domestic counterparts in an average country yet MP’s share in global GDP decreased – I find that larger countries faced greater MP declines and high MP intensity countries saw larger GDP drops. These patterns can be explained by adverse MNE productivity shocks in major economies that propagated to their MNEs elsewhere and reduced GDP in MP intensive countries. To quantify the spillover effects, I develop a model of MP, sectoral linkages, and global value chains. The model shows that, considering MNEs’ involvement in trade, supply-side productivity shocks contributed almost as much to world total trade decline as demand shocks. MNE shocks had a more significant impact on cross-country trade variations compared to demand shocks. MP linkages amplified productivity shocks from key headquarters countries on global MP, trade, and welfare, highlighting the importance of productivity shocks and their propagation through MNEs in understanding the “Multinationals’ Resilience Puzzle”.

Date: 2023
New Economics Papers: this item is included in nep-int and nep-opm
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Citations: View citations in EconPapers (1)

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