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

Author

Listed:
  • Laura Alfaro

    () (Harvard Business School, Business, Government and the International Economy Unit)

  • Maggie Chen

    () (George Washington University)

Abstract

We examine in this paper the differential response of establishments to the global financial crisis, with particular emphasis on the role of foreign direct investment (FDI) in determining 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 distinct channels through which FDI affects establishment performance, (i) production linkages, (ii) financial linkages, and (iii) multinational networks. Our analysis shows that while multinational owned establishments performed, on average, better than their local competitors, there is considerable heterogeneity in the role of FDI. First, multinationals located in countries that experienced sharper declines in aggregate output, demand, and credit conditions displayed a greater advantage over local firms. Multinationals headquartered in countries with a greater incidence of the crisis, in contrast, fared less satisfactorily abroad. Second, multinationals that engaged 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 to superior economic performance.

Suggested Citation

  • Laura Alfaro & Maggie Chen, 2010. "Surviving the Global Financial Crisis: Foreign Direct Investment and Establishment Performance," Harvard Business School Working Papers 10-110, Harvard Business School.
  • Handle: RePEc:hbs:wpaper:10-110
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    Cited by:

    1. Sebnem Kalemli-Ozcan & Herman Kamil & Carolina Villegas-Sanchez, 2016. "What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 756-769, October.
    2. Vintila Denisia Mariana, 2011. "Foreign Direct Investments During Financial Crises," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 41-45, December.
    3. repec:ipf:psejou:v:41:y:2017:i:4:p:421-441 is not listed on IDEAS
    4. Miao Han, 2012. "The People's Bank of China during the global financial crisis: policy responses and beyond," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(4), pages 361-390, August.
    5. Jie Cai & Lian An, 2014. "Is Protectionism Rational Under the Financial Crisis? Analysis from the Perspective of International Political Relations," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(3), pages 278-299, March.
    6. Marta Anna GÖTZ, 2015. "Pursuing FDI policy in the EU – Member States and their policy space," Journal of Economics and Political Economy, KSP Journals, vol. 2(2), pages 290-308, June.
    7. Martin Borowiecki & Bernhard Dachs & Doris Hanzl-Weiss & Steffen Kinkel & Johannes Pöschl & Magdolna Sass & Thomas Christian Schmall & Robert Stehrer & Andrea Szalavetz, 2012. "Global Value Chains and the EU Industry," wiiw Research Reports 383, The Vienna Institute for International Economic Studies, wiiw.
    8. DORNEAN Adina & OANEA Dumitru-Cristian, 2013. "Foreign Direct Investment And Post Crisis Economic Growth. Evidence From European Union," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 65(6), pages 46-60.

    More about this item

    Keywords

    global financial crisis; establishment response; foreign direct investment; production linkage; financial linkage; network;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F1 - International Economics - - Trade

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