Abstract
This paper examines the effect of the Global Financial Crisis on manufacturing firms in Sweden by analyzing the effect of trade exposure on firm performance. This study examines the decline in international trade during the global financial crisis by focusing on the relationship between global production linkages and firm performance. The trade exposure at the firm and industry levels were measured to assess the direct and indirect effects of the crisis on firm performance. Robust evidence was found of a negative relationship between trade exposure and the firms’ sales and value-added growth during the crisis. In addition, it was found that higher export dependence was associated with lower sales growth during the crisis. Our results also show that the effect of the decline in the external demand on firm performance depends on the international input-output linkages. In particular, industries that are upstream in the value chain experienced a less severe decline in performance during the crisis.
Highlights
The Global Financial Crisis (GFC) of 2008–2009 has resulted in one of the most severe economic downturns in recent times and triggered economic recessions in many countries across the world
This paper examines one aspect of the decline in international trade during the global financial crisis by focusing on the relationship between global production linkages and firm performance
Our results suggest that export growth is one of the main factors driving the negative impact of trade exposure on foreign sales growth
Summary
The Global Financial Crisis (GFC) of 2008–2009 has resulted in one of the most severe economic downturns in recent times and triggered economic recessions in many countries across the world. By using export growth and domestic sales growth as our main measures of firm performance, this paper can shed light on the direct and indirect effects of the global financial crisis on firms. Firm-level data were combined with industry measures of global value chain participation to investigate the role of input-output linkages between Swedish and foreign industries and how these linkages influenced firm performance during the crisis period. The decline in the firms’ export growth was more severe than the decline in domestic sales growth This indicates that greater exposure to trade through deeper participation in global value chains may make firms more sensitive to changes in external demand. This paper finds that evidence supporting the claim that global production linkages is one key mechanism through which the sudden decrease in external demand resulted in a decline in the firms’ sales and export performance.
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