Abstract
Abstract Most studies on Multinational Enterprises (MNEs) focus on the impact of their expansion through inward or outward foreign direct investment (FDI) flows. However, divestments are quite common among the operations of MNEs. In order to derive their effects, we build a computable general equilibrium (CGE) model that includes two non-standard characteristics: the presence of MNEs and unemployment. The model is applied to the Spanish economy, where FDI inflows have surpassed divestments at the aggregate level in the period 2005-2009, although divestments have been sizeable in ten sectors. We analyse two different scenarios: 1) divestments that involve the closure of plants of foreign affiliates and 2) divestments where national firms buy the plant of foreign affiliates. The model allows estimating the overall impact of the divestments occurring simultaneously in ten sectors and in particular sectors. Results not only show that national acquisitions are less harmful than closures, but quantify those effects, and provide information on the role of the divesting sector. Some adjustment costs arise in all scenarios.
Highlights
Most studies on Multinational Enterprises (MNEs) focus on the impact of their expansion through inward or outward foreign direct investment (FDI) flows, and foreign outsourcing or offshoring
We analyse the case of Spain, a developed economy that has been heavily affected by the financial crisis and experienced a huge increase in unemployment rate
A caveat on the use of divestments data is how to avoid including operations that are not strictly related to reductions in production or employment. This is the case for reverse intra-company loans, or the repayments of debts to the parent company. These cases appear in many sources as a divestment, but the Spanish Registry of FDI data allows disentangling them from the sectoral data on transmissions to other owners, and from partial and total closures
Summary
Most studies on Multinational Enterprises (MNEs) focus on the impact of their expansion through inward or outward foreign direct investment (FDI) flows, and foreign outsourcing or offshoring. MNE divestments are common operations: “[They] affect between one quarter and four fifths of all FDI projects” (UNCTAD 2009: 8) This phenomenon becomes more important in times of crisis and high unemployment (UNCTAD 2012: 62–63), but is not limited to those times. The empirical evidence shows that when a demand shock takes place, MNEs adjust their employment quicker than national firms, they are more likely to retain their employees (see, for example, Görg and Strobl 2003; Barba Navaretti et al 2003). The lack of a clear theoretical framework for model divestment makes it suitable for simulation models to test plausible scenarios For this reason, we analyse the case of Spain, a developed economy that has been heavily affected by the financial crisis and experienced a huge increase in unemployment rate (from 8% in 2007 to 26% in 2013).
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
