The Impact of a Natural Disaster on Foreign Direct Investment and Vertical Linkages

Hayato Kato and Toshihiro Okubo

No 2017-018, Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University

Abstract: How do multinational enterprises (MNEs) affect the host country through their vertical industrial linkages when large natural disasters occur? To answer this question, we develop a simple theoretical framework and show that, as trade costs decline, the host country is first dominated by MNEs and then later by local firms. Thus, when natural disasters seriously damage capital, the industrial configurations in the host country switch from domination by MNEs to domination by local firms. The replacement of MNEs with local firms can raise the welfare of the host country.

Keywords: MNEs; Natural disasters; Industrial linkage (search for similar items in EconPapers)
JEL-codes: F12 F23 Q54 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2017-06-10
New Economics Papers: this item is included in nep-env and nep-int
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:keo:dpaper:2017-018

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