Foreign Direct Investment in Times of Global Economic Crisis: Spotlight on New Europe
Sergey Filippov & Kálmán Kalotay
#2009-021
This paper examines the potential impact of the economic crisis –
started in 2008 – on the dynamics global foreign direct investment,
especially in the new member states of the European Union. The global
economic crisis that hit the world in 2008 has forced scholars and
policy makers alike to rethink their approaches to the global economy,
in particular to financial markets (including stock exchanges and
portfolio investment). It can be hypothesised that the crisis has been
particularly devastating because it has resulted from the coincidence of
three factors: a cyclical downturn in the world economy; a structural
change that hit certain industries which used to be star performers in
the global economy (especially the automotive industry); and the
collapse of the previous model of the financial industry based on
excesses. This paper asks how this crisis affects foreign direct
investment flows, with special attention being paid to the question of
which locations are set to lose the least and which ones are set to lose
the most. In this respect, particular attention is paid to the
activities of subsidiaries of multinational enterprises. These
subsidiaries can follow different scenarios as a response to the global
economic turmoil, including a reorganization of their production
systems, and a reduction or closure of activities that are deemed to be
less necessary for the continuation of activities. Finally, the paper
examines the policy implications of the crisis. It challenges the view
that rising economic nationalism (in the form of protecting one location
against locations in other countries) would be the right answer to the
problems created by corporate restructurings.
Keywords: foreign direct investment, credit crunch, foreign
subsidiaries, Europe
JEL: F01, F23, O30
UNU-MERIT Working Papers
ISSN 1871-9872