The International Propagation of Economic Downturns Through Multinational Companies: The Real Economy Channel
Charles A. Dice Center Working Paper No. 2017-11
82 Pages Posted: 3 May 2017 Last revised: 3 Nov 2021
Date Written: September 13, 2020
We study how non-financial multinational companies propagate economic declines from their subsidiaries located in countries experiencing an economic downturn to subsidiaries in countries not experiencing one. We find that investment is 18% lower in subsidiaries of these parents relative to the same-industry, same-country subsidiaries of parents that are headquartered in the same parent country but do not have a subsidiary in a country experiencing an economic downturn. The employment growth rate in the affected subsidiaries is zero or negative while it is 1.4% in the subsidiaries of unaffected parents. The aggregate industry-level sales and employment are also negatively impacted in the countries of the affected subsidiaries.
Keywords: Propagation, Contagion, Real Economy Channel, Investment, MNC
JEL Classification: G01, G31, F23
Suggested Citation: Suggested Citation