The Resilience of FDI to Natural Disasters through Industrial Linkages

         
Author Name KATO Hayato (Osaka University) / OKUBO Toshihiro (Keio University)
Creation Date/NO. June 2021 21-E-044
Research Project Economic Policy Issues in the Global Economy
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Abstract

When do multinationals show resilience during natural disasters? To answer this, we develop a simple model in which 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 intermediates, most multinationals may leave the host country. However, they are likely to stay if they are tightly linked with local suppliers and face lower trade costs of importing foreign intermediates. We further provide two extensions of the basic model to allow for multinationals with heterogeneous productivity and disaster reconstruction.