The Resilience of FDI to Natural Disasters through Industrial Linkages

Kato, Hayato and Okubo, Toshihiro (2021): The Resilience of FDI to Natural Disasters through Industrial Linkages.

Abstract

When do multinationals show resilience during natural disasters? To answer this, we develop a simple model in which foreign multinationals and local firms in the host country are interacted through input-output linkages. When natural disasters seriously hit local firms and thus increase the cost of sourcing local intermediate inputs, most multinationals may leave the host country. However, they are likely to stay if they are tightly linked with local suppliers and face low trade costs of importing foreign intermediates. We further provide a number of extensions of the basic model to incorporate, for example, multinationals with heterogeneous productivity and disaster reconstruction.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign direct investment (FDI); Multinational enterprises (MNEs); Input-output linkages; Supply chain disruptions; Multiple equilibria
• Subjects: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

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