The Impact of a Natural Disaster on Foreign Direct Investment and Vertical Linkages

Kato, Hayato; Okubo, Toshihiro

doi:10.2139/ssrn.2983835

Cited by 10 publications

(14 citation statements)

References 56 publications

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“…Natural disasters are defined as the result of adverse events, natural or man-made, on an ecosystem, causing human, material and/or environmental damage and consequent economic and social damage (Castro, 1998;Yang, 2008;Klomp & Valckx, 2014;Botzen, Deschnes & Sanders, 2019;Kato and Okubo, 2018;Khan et al, 2020;Botzen, Deschnes & Sanders, 2019). These phenomena are occurring commonly around the world (Jaramillo, 2009;Khan et al, 2020;Toner-Rodgers & Friedt, 2020) and their consequences differ by culture, infrastructure and policies (Bergholt & Lujala, 2012), which can destroy different types of institutions allocated in the countries (Pelling et al, 2002).…”

Section: Natural Disastersmentioning

confidence: 99%

“…Despite the above, some authors (Kato & Okubo, 2018;Doytch, 2019), emphasize that the negative effects of natural disasters can change according to the analysis of time, causing even improvements in the local economy. In contrast, Pelling et al (2002) points out that in the first moment, natural disasters tend to increase growth in the construction sector; however, these gains are generally restricted to a period of six months after the disaster.…”

Section: Natural Disastersmentioning

confidence: 99%

“…Multinational companies promote increases in employment rates, expansion of technological innovation and increase in human capital. However, when a natural disaster occurs, the number of local suppliers is reduced, causing higher costs for the acquisition of inputs, which means that multinationals rethink whether the country is still profitable, being able to choose to cancel its investments in the region (Jaramillo, 2009;Kato & Okubo, 2018;Toner-Rodgers & Friedt, 2020). Even in the face of this context, the literature on the effect of natural disasters on the economy is in its first steps (Doytch, 2019).…”

Section: Introductionmentioning

confidence: 99%

“…The results obtained in the literature for the effects of natural disasters on FDI are diverse. While for some authors the number of foreign subsidiaries does not decrease in response to natural disasters (Oh & Oetzel, 2011;Katoka, 2020), or even, natural disasters cause positive long-term effects on FDI (Kato & Okubo, 2018;Doytch , 2019), others conclude that greater severity associated with natural disasters tends to reduce FDI flows (Yang, 2008;Anuchitworawong & Thampanishvong, 2015;Escaleras & Register, 2011;Khan et al 2020;Toner-Rodgers & Friedt, 2020).…”

Section: Introductionmentioning

confidence: 99%

“…The frequency with which natural disasters are occurring worldwide has worsened, and their consequences for the economy cannot be ignored (Khan et al, 2020;Toner-Rodgers & Friedt, 2020). Likewise, FDI has increased dramatically in recent decades (Kato & Okubo, 2018). In view of the increasing frequency and severity of natural disasters, managers of multinationals are being pressured to develop strategies that manage the effects of natural disasters on their companies (Oh et al, 2020).…”

Section: Introductionmentioning

confidence: 99%

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O efeito dos desastres naturais no investimento estrangeiro direto dos países

Ramos

Krug

Ferretti

et al. 2021

RIAE

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Objective: This study aims to analyze the influence of natural disasters on countries' FDI.Method: We used data from 137 countries, considering the period from 2011 to 2017. The secondary data used to measure Foreign Direct Investment are from the UNCTAD - United Nations Conference on Trade and Development following the study by Alfaro et al. (2004). For data on natural disasters, the EM-DAT database - The International Disaster Database provided by CRED - Center for Research on the Epidemiology of Disasters - was used, based on the studies by Toya Skidmore (2007) and Escaleras Register (2011). The analysis was performed through Linear Regression of panel data.Originality/Relevance: This study points to a direction of research for those interested in expanding the flows of Foreign Direct Investment in their countries, being significant in the field of business, government, public policy makers and the third sector.Results: The results show that when an economy suffers from natural disasters that cause deaths and, consequently, a reduction in human capital, foreign investors can negatively portray this fact. On the other hand, the number of occurrences and the loss in millions of dollars when analyzed individually do not discourage FDI and the presence of multinationals in the affected country. The variables: total of injured, total of affected, and total of homeless have no relation with FDI in the analyzed sample. It is indicated that, in the face of a natural disaster, countries create opportunities for the replacement and reconstruction of infrastructure and human capital.Theoretical contribution: We seek to contribute theoretically to the recent increase of studies that verify the relationship between natural disasters and FDI in the light of the institution-based view. We direct greater understanding to the premise that natural disasters affect a country's economy as they cause FDI reduction, and we provide the foundation for future studies. While previous studies are concerned with FDI determinants, being tax incentives and property rights, this study focuses specifically on the different variables that aggregate natural disasters. In addition, the study aims to expand the perception of decision makers, belonging to the government, private entities and the third sector, so that they can reduce and prevent the occurrence of natural disasters, thus attracting FDI flows in their countries.

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