The volatility of offshore investment

Flamm, Kenneth

doi:10.1016/0304-3878(84)90076-2

Cited by 75 publications

(40 citation statements)

References 4 publications

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“…When discussing the "footloose" nature of multinationals one generally has in mind that they are more likely to respond to negative shocks to the economy than domestic plants, and that this response is greater volatility in investment (Flamm, 1984). In our case, we would therefore expect that foreign owned plants are more likely to exit if there are adverse changes in the economy.…”

Section: Resultsmentioning

confidence: 86%

“…If multinationals are indeed more "footloose" they may be expected to be more likely to leave the country especially during that period when it was hit by a negative shock (Flamm, 1984). Previous literature did not analyze directly this issue but examined generally whether multinationals are more likely to exit than domestic firms.…”

Section: Introductionmentioning

confidence: 96%

“…One argument emphasises the notion of multinationals being more footloose, i.e., more likely to leave an economy than domestic firms if the economy experiences a negative shock (e.g, Flamm, 1984).…”

Section: Introductionmentioning

confidence: 99%

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Multinationals and plant exit: Evidence from Chile

Álvarez

Görg

2009

International Review of Economics & Finance

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This paper investigates three main questions: are affiliates of foreign multinationals more likely to exit than domestic firms? Does the exit probability of multinationals depend on its export orientation?, and Does the presence of multinationals affect the survival of other firms in the economy? Our results show that foreign plants are more likely to exit the economy, controlling for other firm and industry characteristics, only during the late 1990s, a period when the Chilean economy experience a massive slowdown. Our data also suggest that only domestic market oriented multinationals responded to this negative shock by being more "footloose". We also find that the presence of multinationals has a positive effect on plant survival in the early 1990s. This positive effect, however, is fully captured by productivity, once controlling for TFP in our exit regressions we do not find any further impact of multinational presence on a plant's probability of exit.

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Section: Resultsmentioning

confidence: 86%

Section: Introductionmentioning

confidence: 96%

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Multinationals and plant exit: Evidence from Chile

Álvarez

Görg

2009

International Review of Economics & Finance

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“…Compared to their domestic counterparts, it may be easier for foreign firms to transfer production facilities internationally (Flamm, 1984;Lee & Makhija, 2009), to cut operational costs (Gao & Eshaghoff, 2004) and, in the extreme, to exit the local economy. If multinationals are indeed more ''footloose'', they may be expected to be more likely to leave the country, especially during that period when it is hit by a negative shock.…”

Section: Footloose Multinationals and Economic Downturnsmentioning

confidence: 99%

Economic slowdowns, hazard rates and foreign ownership

Varum¹,

Rocha²,

Silva³

2014

International Business Review

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This paper evaluates the link between foreign ownership and firm exit during crises, using a longitudinal micro dataset over an 18-year period. We address two main questions: first, if foreign affiliates have different failure rates than domestic firms during economic downturns, and second if the foreignness effect differs between two different economic downturns. The results partially confirm the liability of foreignness argument, suggesting that when the crisis was more pronounced at home than abroad, the differences in hazard rates between foreign and domestic firms reduce. The footloose argument is also only partially confirmed. For policy makers, our results on survival dynamics during crises are not against policies stimulating inward investment. There is no need to fear that foreign firms destabilize more than usual the host economy during economic slowdowns by immediately closing down operations.ß 2013 Elsevier Ltd. All rights reserved. Author's personal copy downturns because foreign firms hold some sort of ownership advantages over domestic ones. Foreign multinationals may have better conditions to face the crises owing to their multinationality advantages or they may resist more due to the sunk costs associated with their investment (Chung, Lu, & Beamish, 2008;Desai, Foley, & Forbes, 2004;Ghosal, 2010). Studies about the importance of foreign ownership during crises are relatively scarce, the notable exceptions being the studies by Á lvarez and Gö rg (2009), Lee and Makhija (2009) and Varum and Rocha (2011). Hence, in this paper we use longitudinal firm-level data for a large time span to assess, first, whether foreign ownership contributes to differentiating the incidence of firm exit during crises, controlling for other determinants that may affect the exit risk of firms. We use discrete time hazard models that account for firm-level unobserved heterogeneity to answer our research questions. In addition, we analyze whether the foreign ownership effect differs between two crises, which occurred in the same economy, in different periods of time and with different characteristics. To our knowledge the paper is unique in these respects. We analyze manufacturing firms created in Portugal in the period 1988-2005 by following their paths during the whole period and the economic slowdowns of early 1990s and 2000s. Portugal in particular is an interesting case as the economy experienced these significant slowdowns which provide us with 'a natural experiment to identify directly the ''footloose nature'' of multinationals' (Á lvarez & Gö rg, 2009).Results from past lessons may be of value in understanding more modern recessions, such as the one from which the world economy is currently recovering. For the Portuguese case we add to the previous important contributions of Portugal (2002, 2004), by enlarging the time span of their study and focusing on the potential effect of foreign ownership during (different) downturn periods. Compared to Varum and Rocha (2011), who examined the link between foreign ownershi...

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“…Therefore, conventionally, the expected sign for this variable is negative. The studies that find no significant or a negative relationship of wage and FDI are: Goldsbrough (1979), Saunders (1982), Kravis and Lipsey (1982), Flamm (1984), Wheeler andMody, (1990), Sader (1993), Lucas (1993), Tsai (1994), Wang and Swain (1995), Barrell and Pain (1996), Cheng and Kwan (1999) and Botric and Skuflic (2006) sign that lower wages attract FDI positively. Nonetheless, there are other researchers who have found out that higher wages do not always deter FDI in all industries and have shown a positive relationship between labour costs and FDI (Moore, 1993;and Love and LaveHidalgo, 2000).…”

Section: Introductionmentioning

confidence: 99%