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.

Study on the Resilience Measurement of the New Energy Vehicle Industry Chain

“…(2) Localized supply sources. One of the best strategies in the vehicle industry to mitigate the risks associated with NCCP is to develop localized sources of supply [12,21,[49][50][51][53][54][55][56]. If sourcing (and processing) is localized in the same region to meet local demand, it reduces supply chain integration.…”

“…If sourcing (and processing) is localized in the same region to meet local demand, it reduces supply chain integration. As a result, the risk of disruption can be contained within the region because risk events do not spread from one region to another [54,56,57].…”

“…When natural disasters hit local firms hard, thereby increasing the cost of sourcing local intermediate inputs, most TNCs may leave the host country. However, they are likely to stay if they have close relationships with local suppliers and if the trade costs of importing foreign intermediates are low [49,54].…”

The role of foreign-owned entities in building economic resili-ence in times of crisis: The case of European digital and technologically-intensive firms during the Covid-19 pandemic

“…Firm level analysis on resilience are rarely performed and their coverage (number of countries and firms) is limited (Todo et al, 2022). Micro-level dimension of resilience is investigated by the occasion of natural disasters (Hallegatte et al, 2017;Kato & Okubo, 2022), especially in the context of households' income (Bernini et al, 2020). While it is acknowledged that firms' performance matters not only for the sector in which a firm operates, but also for the creditors, the financial system and finally, for the entire economy, the related analysis are restricted to SMEs, single or a limited number of countries (Abdel Fattah et al, 2020;Arcuri et al, 2019;Arcuri & Levratto, 2020;Qamar et al, 2023).…”