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

Author

Listed:
  • Hayato Kato

    (Faculty of Economics, Keio University)

  • Toshihiro Okubo

    (Faculty of Economics, Keio University)

Abstract
How do multinational enterprises (MNEs) affect the host country through their vertical industrial linkages when large natural disasters occur? To answer this question, we develop a simple theoretical framework and show that, as trade costs decline, the host country is first dominated by MNEs and then later by local firms. Thus, when natural disasters seriously damage capital, the industrial configurations in the host country switch from domination by MNEs to domination by local firms. The replacement of MNEs with local firms can raise the welfare of the host country.

Suggested Citation

  • Hayato Kato & Toshihiro Okubo, 2017. "The Impact of a Natural Disaster on Foreign Direct Investment and Vertical Linkages," Keio-IES Discussion Paper Series 2017-018, Institute for Economics Studies, Keio University.
    • Handle: RePEc:keo:dpaper:2017-018
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    File URL: https://ies.keio.ac.jp/upload/pdf/en/DP2017-018.pdf
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    References listed on IDEAS

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    Cited by:

    1. ADACHI Daisuke & SAITO Yukiko, 2020. "Multinational Production and Labor Share," Discussion papers 20012, Research Institute of Economy, Trade and Industry (RIETI).
    2. Hayato Kato & Toshihiro Okubo, 2022. "The Resilience of FDI to Natural Disasters Through Industrial Linkages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 177-225, May.
    3. Lochan Kumar Batala & Wangxing Yu & Anwar Khan & Kalpana Regmi & Xiaoli Wang, 2021. "Natural disasters' influence on industrial growth, foreign direct investment, and export performance in the South Asian region of Belt and road initiative," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 108(2), pages 1853-1876, September.
    4. Kodad Rajaa & Jingfeng Yuan & Lei Zhang & Junwei Ma & Lei Zhang, 2021. "External Factors Affecting Investment in Overseas Electric Power Projects," Springer Books, in: Gui Ye & Hongping Yuan & Jian Zuo (ed.), Proceedings of the 24th International Symposium on Advancement of Construction Management and Real Estate, pages 1455-1472, Springer.

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    More about this item

    Keywords

    MNEs; Natural disasters; Industrial linkage;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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