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When multinationals leave: A CGE analysis of the impact of divestments

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  • Gómez Plana, Antonio G.
  • Latorre, María C.

Abstract

Most studies on Multinational Enterprises (MNEs) focus on the impact of their expansion through inward or outward foreign direct investment (FDI) flows. However, divestments are quite common among the operations of MNEs. In order to derive their effects, we have built a computable general equilibrium (CGE) model that includes two non-standard characteristics: the presence of MNEs, further extended to include unemployment. The model is applied to the Spanish economy, where FDI inflows have surpassed divestments at the aggregate level in the period 2005-2009. However, in ten sectors divestments are sizeable. Therefore, we analyse two different scenarios: 1) Divestments that imply the closure of plants of foreign affiliates; and 2) Divestments in which national firms buy the plant of the foreign affiliate. The model allows estimating the overall impact of the divestments occurring simultaneously in the ten sectors. We further, analyse the contrasting impact of divestments depending on the particular sector in which they take place. Results not only show that national acquisitions are less harmful than closures, but quantify those effects, and provide information on the divested-sector role. In any case, some adjustment costs arise in all scenarios.

Suggested Citation

  • Gómez Plana, Antonio G. & Latorre, María C., 2013. "When multinationals leave: A CGE analysis of the impact of divestments," Economics Discussion Papers 2013-45, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:201345
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Zhou, Jing & Latorre, María C., 2015. "FDI in China and global production networks: Assessing the role of and impact on big world players (East Asia, Japan, EU28 and U.S.)," MPRA Paper 62297, University Library of Munich, Germany.
    2. Latorre, María C., 2016. "A CGE Analysis of the Impact of Foreign Direct Investment and Tariff Reform on Female and Male Workers in Tanzania," World Development, Elsevier, vol. 77(C), pages 346-366.
    3. María C. Latorre & Nobuhiro Hosoe, 2014. "How much can foreign multinationals affect the Chinese economy? A dynamic general equilibrium analysis of Japanese FDI," GRIPS Discussion Papers 14-16, National Graduate Institute for Policy Studies.
    4. Latorre, María C. & Hosoe, Nobuhiro, 2016. "The role of Japanese FDI in China," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 226-241.
    5. Latorre, Maria C., 2014. "CGE analysis of the impact of foreign direct investment and tariff reform on female and male wages," Policy Research Working Paper Series 7073, The World Bank.
    6. Maria C Latorre & Hidemi hi Yonezawa, 2016. "An innovative CGE assessment of the impact of the TTIP including multinationals and Foreign Direct Investment," EcoMod2016 9333, EcoMod.
    7. Latorre, María C. & Yonezawa, Hidemichi, 2017. "Stopped TTIP? Its potential impact on the world and the role of neglected FDI," MPRA Paper 77162, University Library of Munich, Germany.

    More about this item

    Keywords

    FDI; disinvestments; closures; national acquisitions; Spain;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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