Surviving the Crisis: Foreign Multinationals versus Domestic Firms

Abstract

Starting from the observation that all firms in Ireland (foreign and domestic in manufacturing and services industries) were hit by the crisis, the paper asks whether there is a difference in the behaviour of foreign and domestic firms. One hypothesis is that foreign multinationals are less linked into the Irish economy, so more likely to leave once the economy is hit by a negative shock. The paper discusses background hypotheses before giving empirical evidence from first, aggregate data and second, firm‐level observations. The analysis of the latter suggests that foreign firms are not more likely to leave during the crisis than Irish firms. Some policy conclusions are offered in the paper.

Multinational Resilience or Dispensable Jobs? German FDI and Employment in the Czech Republic Around the Great Recession

“…While they do not observe a significant effect of foreign ownership in non-crisis years, the multinational affiliates exhibited on average a better performance during the global recession. Godart et al (2012) for Ireland, Amendola et al (2012) for Italy and Wagner and Weche Gelübcke (2014) for Germany conclude that foreign-owned firms were not more likely to exit during the recession than purely national firms. Peters and Weigert (2013) analyse the employment development of German multinationals at home and abroad before and during the Great Recession.…”

“…Finally, a third group of examinations does not find evidence for differences between multinationals and domestic firms regarding their employment reaction to a slowdown (e.g. Álvarez and Görg, 2012;Godart et al, 2012;Varum and Rocha, 2011).…”

The impact of economic crisis on firm relocation: Greek SME movement to Bulgaria and its effects on business performance

“…This phenomenon is not unique within Europe. Relocation of economic activity has also been observed recently in other EU countries: Italian firms have moved to Romania and transnational corporations (TNCs) have relocated from Ireland in the first few years after 2007 (Godart et al 2012;Valdemarin 2015). However, the recent industrial capital flight from Greece is unprecedented at the European level, as since 2007 more than 10,000 firms out of the 835,000 Greek small-and medium-sized enterprises (1.2%) have moved from the country, mainly towards Bulgaria, according to estimations of the Hellenic Ministry of Foreign Affairs (2017).…”

“…However, the 2007 global economic crisis (GEC) has significantly affected the business conditions in many territories. While the impact of the crisis on business growth and firm registration has been examined (Duchin et al 2010;Claessens et al 2012;Godart et al 2012), the changes in business conditions encourage a close assessment of the crisis' effects on firm relocation, its internal factors, and its drivers.…”

Ireland’s Foreign Direct Investment Sector: the Impact of a hypothetical Irish Euro zone exit

“…Since the influx of foreign companies in the 1960s FDI has continued to make important contributions to the Irish economy, however Ireland's over reliance on FDI as a stimulator of economic growth has not been without its drawbacks. The footloose nature of FDI means that foreign multinationals are less linked to the Irish economy than indigenous firms, giving them the opportunity to move elsewhere when changes that have the potential to negatively impact their entity, for example rising wage levels, occur in their host environment [42]. This is based on the nature of MNCs as their production processes are easily transferable between countries and can profitably be located elsewhere.…”