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Multinationals as Stabilizers? Economic Crisis and Plant Employment Growth

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  • Alvarez, Roberto

    ()
    (Central Bank of Chile)

  • Görg, Holger

    ()
    (Kiel Institute for the World Economy)

Abstract

This paper examines the link between multinational enterprises and employment growth at the plant-level. We investigate in detail the comparative response of multinationals and domestic firms to an economic crisis, using the empirical setting of a well defined case of economic slowdown in Chile as a natural experiment. In our empirical analysis we find that employment growth in manufacturing plants has been drastically reduced during the economic crisis. More importantly, we do not find evidence that multinationals react to the economic crisis differently than do domestic firms. Our findings hold in a number of robustness tests, in which we also investigate the role of access to finance. The results are in contrast to the idea that multinationals are less affected by an economic crisis and that they may be able to act as stabilizers in developing countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2692.

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Length: 37 pages
Date of creation: Mar 2007
Date of revision:
Publication status: published as 'Multinationals as Stabilisers? Economic Crisis, Access to Finance, and Employment Growth' in: Journal of Development Studies, 2012, 48 (7), 847-863
Handle: RePEc:iza:izadps:dp2692

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Keywords: multinationals; employment growth; plant survival; economic crisis;

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References

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  1. Barrios, Salvador & Gorg, Holger & Strobl, Eric, 2005. "Foreign direct investment, competition and industrial development in the host country," European Economic Review, Elsevier, Elsevier, vol. 49(7), pages 1761-1784, October.
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  6. Raddatz, Claudio, 2006. "Liquidity needs and vulnerability to financial underdevelopment," Journal of Financial Economics, Elsevier, Elsevier, vol. 80(3), pages 677-722, June.
  7. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  8. Mihir A. Desai & C. Fritz Foley & Kristin J. Forbes, 2004. "Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Crises," NBER Working Papers 10545, National Bureau of Economic Research, Inc.
  9. Konings, Jozef & Lehmann, Hartmut & Schaffer, Mark E., 1996. "Job creation and job destruction in a transition economy: Ownership, firm size, and gross job flows in Polish manufacturing 1988-1991," Labour Economics, Elsevier, Elsevier, vol. 3(3), pages 299-317, October.
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  12. Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
  13. Andrew B. Bernard & Fredrik Sjoholm, 2003. "Foreign Owners and Plant Survival," NBER Working Papers 10039, National Bureau of Economic Research, Inc.
  14. Alvarez, Roberto & Görg, Holger, 2005. "Multinationals and Plant Exit: Evidence from Chile," IZA Discussion Papers 1611, Institute for the Study of Labor (IZA).
  15. J. Konings & H. Lehmann & M.E. Schaffer, 1996. "Job Creation and Job Destruction in a Transition Economy: Ownership, Firm Size," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 9611, Centre for Economic Reform and Transformation, Heriot Watt University.
  16. Dunne, Paul & Hughes, Alan, 1994. "Age, Size, Growth and Survival: UK Companies in the 1980s," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 115-40, June.
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Cited by:
  1. Sun Eae Chun & Mamoru Nagano & Min Hwan Lee, 2011. "Ownership Structure and Risk‐taking Behavior: Evidence from Banks in Korea and Japan," Asian Economic Journal, East Asian Economic Association, East Asian Economic Association, vol. 25(2), pages 151-175, 06.
  2. Marcin Kolasa & Michal Rubaszek & Daria Taglioni, 2010. "Firms in the great global recession: The role of foreign ownership and financial dependence," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 77, National Bank of Poland, Economic Institute.
  3. Alvarez, Roberto & Görg, Holger, 2009. "Multinationals and plant exit: Evidence from Chile," International Review of Economics & Finance, Elsevier, Elsevier, vol. 18(1), pages 45-51, January.
  4. Shafik Hebous & Alfons Weichenrieder, 2009. "Debt Financing and Sharp Currency Depreciations: Wholly vs. Partially Owned Multinational Affiliates," CESifo Working Paper Series 2892, CESifo Group Munich.
  5. Fabienne Fortanier & Selwyn Moons, 2011. "Foreign Investors in The Netherlands: Heterogeneous Employment and Productivity Effects," De Economist, Springer, Springer, vol. 159(4), pages 511-531, December.

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