Global Financial Crisis
Surviving the Global Financial Crisis:
Foreign Ownership and Establishment Performance∗
Laura Alfaro†
Harvard Business School and NBER
Maggie Chen‡
George Washington University
July 2011
Abstract
We examine the differential response of establishments to the recent global financial crisis with particular emphasis on the role of foreign ownership. Using a worldwide establishment panel dataset, we investigate how multinational subsidiaries around the world responded to the crisis relative to local establishments.
We find that, first, multinational subsidiaries fared on average better than local counterfactuals with similar economic characteristics. Second, among multinational subsidiaries, establishments sharing stronger vertical production and financial linkages with parents exhibited greater resilience. Finally, in contrast to the crisis period, the effect of foreign ownership and linkages on establishment performance was insignificant in non-crisis years.
JEL codes: F2, F1
Key words: global financial crisis, establishment response, foreign ownership, production linkage, financial linkage
∗
We are deeply grateful to the editor Alan Auerbach and two anonymous referees for many valuable comments and suggestions. We also thank James Harrigan, James Markusen, Ariell Reshef, and session and seminar participants at the American Economic Association Meeting, the Midwest International Economics
Group Meeting, the LACEA Trade, Integration and Growth Network Meeting, University of Virginia, IMF, and the Kiel International Economics Meeting for helpful feedback. We are grateful to Dun & Bradstreet and
Dennis Jacques for helping with the D&B dataset and HBS and GW CIBER for financial support.
†
Email: lalfaro@hbs.edu; Phone: 617-495-7981.
‡
Email: xchen@gwu.edu; Phone: 202-994-0192.
1
1
Introduction
In 2007-2008, the world economy entered the deepest financial crisis since World War II.
Countries around the globe witnessed major declines
Foreign Ownership and Establishment Performance∗
Laura Alfaro†
Harvard Business School and NBER
Maggie Chen‡
George Washington University
July 2011
Abstract
We examine the differential response of establishments to the recent global financial crisis with particular emphasis on the role of foreign ownership. Using a worldwide establishment panel dataset, we investigate how multinational subsidiaries around the world responded to the crisis relative to local establishments.
We find that, first, multinational subsidiaries fared on average better than local counterfactuals with similar economic characteristics. Second, among multinational subsidiaries, establishments sharing stronger vertical production and financial linkages with parents exhibited greater resilience. Finally, in contrast to the crisis period, the effect of foreign ownership and linkages on establishment performance was insignificant in non-crisis years.
JEL codes: F2, F1
Key words: global financial crisis, establishment response, foreign ownership, production linkage, financial linkage
∗
We are deeply grateful to the editor Alan Auerbach and two anonymous referees for many valuable comments and suggestions. We also thank James Harrigan, James Markusen, Ariell Reshef, and session and seminar participants at the American Economic Association Meeting, the Midwest International Economics
Group Meeting, the LACEA Trade, Integration and Growth Network Meeting, University of Virginia, IMF, and the Kiel International Economics Meeting for helpful feedback. We are grateful to Dun & Bradstreet and
Dennis Jacques for helping with the D&B dataset and HBS and GW CIBER for financial support.
†
Email: lalfaro@hbs.edu; Phone: 617-495-7981.
‡
Email: xchen@gwu.edu; Phone: 202-994-0192.
1
1
Introduction
In 2007-2008, the world economy entered the deepest financial crisis since World War II.
Countries around the globe witnessed major declines
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