Exercising Strategic Flexibility by MNEs During the 2008–2009 Global Financial Crisis

Given the merits associated with foreign direct investment (FDI), governments deploy policies to attract foreign multinational enterprises (MNEs). At the same time, governments deploy policies to smooth business cycles because of the costs associated with fluctuations in economic activity. The cross‐border presence of MNEs bestows upon them the strategic flexibility to adjust their activities across borders in response to recessions or financial crisis (or both). This raises the important question of whether, within any given domestic‐market context, the operations of both domestic and foreign MNEs magnify or mitigate business cycles. The current paper is focused on the 2008–2009 global financial crisis and the recession that followed, and the extent to which domestic and foreign MNEs operating in the Canadian market magnified its effects on the Canadian economy. This research is important because to the extent that MNEs magnify the effects of such financial crises, these additional costs must be offset against the benefits that come from the presence of MNEs.