Surviving the Global Financial Crisis: Foreign Direct Investment and Establishment Performance

Maggie Chen and Laura Alfaro

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: We examine in this paper the differential resposnse of establishements to the global financial crisis, with particular emphasis on the role of foreign direct investment (FDI) in determint micro economic performance. Using a new worldwide dataset that reports the activities of more than 12 million establishments before and after 2008, we investigate how multinationals around the world responded to the crisis relative to local firms. We explore three distince channels through which FDI affects establishment performance, (i) production linkages, (ii) fiancial linkages, and (iii) multinational networks. Our analysis shows that while multinational owned establishments performed, on average, better than their local competitors, there is considerable heterogenity in the role of FDI. First, multinationals located in countries that experienced sharper declines in aggrefate output, demand, andcredit conditions displayed a greater advantage over local firms. Multinationals headquartered in countries with a greater incidence of the crisis, in contrast, fared less satisfactorialy abroad. Second, multinationals that exgaged in activities with vertical production linkages or stronger financial constraints exhibited particularly better responses compared to local firms. Finally, being part of a larger multinational network also led tosuperior economic performance.

Keywords: global financial crisis; establishment response; foreign direct investment; production linkage; financial linkage; network (search for similar items in EconPapers)
JEL-codes: F1 F2 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2010-06
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Published In Harvard Business School, July 8, 2010

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http://www.gwu.edu/~iiep/assets/docs/papers/Chen_IIEPWP2010-17.pdf (application/pdf)

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Working Paper: Surviving the Global Financial Crisis: Foreign Direct Investment and Establishment Performance (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2010-17

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