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Multinationals as Stabilizers?: Economic Crisis and Plant Employment Growth

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  • Roberto Alvarez
  • Holger Görg

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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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 07/15.

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Handle: RePEc:not:notgep:07/15

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

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References

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  1. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 559-86, June.
  2. Matias Braun & Borja Larrain, 2004. "Finance and the Business Cycle: International, Inter-industry Evidence," Finance, EconWPA 0403001, EconWPA.
  3. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
  4. Raddatz, Claudio, 2006. "Liquidity needs and vulnerability to financial underdevelopment," Journal of Financial Economics, Elsevier, Elsevier, vol. 80(3), pages 677-722, June.
  5. 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.
  6. Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers, C.V. Starr Center for Applied Economics, New York University 86-33, C.V. Starr Center for Applied Economics, New York University.
  7. Brian Aitken & Ann Harrison & Robert E. Lipsey, 1995. "Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela and the United States," NBER Working Papers 5102, National Bureau of Economic Research, Inc.
  8. Beata K. Smarzynska, 2003. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 548, William Davidson Institute at the University of Michigan.
  9. Andrew B. Bernard & Fredrik Sjoholm, 2003. "Foreign Owners and Plant Survival," NBER Working Papers 10039, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
  12. Flamm, Kenneth, 1984. "The volatility of offshore investment," Journal of Development Economics, Elsevier, Elsevier, vol. 16(3), pages 231-248, December.
  13. Holger G–rg & Eric Strobl, 2003. "Multinational Companies, Technology Spillovers and Plant Survival," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 105(4), pages 581-595, December.
  14. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 300-316, March.
  15. Harrison, Ann E. & McMillan, Margaret S., 2003. "Does direct foreign investment affect domestic credit constraints?," Journal of International Economics, Elsevier, Elsevier, vol. 61(1), pages 73-100, October.
  16. 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.
  17. 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.
  18. 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.
  19. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 70(2), pages 317-341.
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Cited by:
  1. Alvarez, Roberto & Görg, Holger, 2005. "Multinationals and Plant Exit: Evidence from Chile," IZA Discussion Papers 1611, Institute for the Study of Labor (IZA).
  2. Chun, Sun Eae & Nagano, Mamoru & Lee, Min Hwan, 2010. "Ownership Structure and Risk-taking Behavior: Evidence from Banks in Korea and Japan," MPRA Paper 25334, University Library of Munich, Germany.
  3. 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.
  4. 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.
  5. Shafik Hebous & Alfons Weichenrieder, 2009. "Debt Financing and Sharp Currency Depreciations: Wholly vs. Partially Owned Multinational Affiliates," CESifo Working Paper Series, CESifo Group Munich 2892, CESifo Group Munich.

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