FDI, Involvement in Global Supply Chains and Host Country Development

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Over the past decade there were a rising number of firm-level empirical studies investigating direct and indirect effects of multinational enterprises (MNEs) on domestic firms and, more generally, economic development in different host countries. The strong increase in the number of related firm-level studies can be particularly attributable to the substantial progress made in the “New” new trade theory since the beginning of the 21^st century on the one hand and to the availability of large-scale firm-level datasets and the development in advanced analytical tools required over the past years on the other hand.

Holger Görg and his co-authors carried out a series of firm-level empirical studies to investigate the role of MNEs in host countries as well. They mainly focused on the following three aspects. First, they investigated the direct effects of MNEs on host countries reflected in, for example, domestic firms’ productivity performance, wage development, and R&D and innovation engagement in host countries. Second, they moved to search for productivity spillovers induced by MNEs’ engagement in host countries. Third, they paid attention to investigating potential mechanisms such as movement of workers and backward linkages behind MNEs’ spillover effects in host countries. Their analyses generally found that MNEs can have positive effects on domestic firms’ productivity performance and on host countries’ economic development. Some key studies from Holger Görg and co-authors investigating the role of MNEs in host countries are now collected in a new publication “Görg (2016), Multinational Enterprises and Host Country Development, World Scientific Publishing.”

Taking previous findings as base the new KCG project “Modelling economic and social dimensions of global supply chains” led by Holger Görg and Horst Raff will go further to analyse whether the integration of firms into global supply chains may actually also increase their exposure and vulnerability to economic shocks in the world economy. In other words, although MNEs’ engagement on site can be advantageous for domestic firms’ economic performance, domestic firms and host countries may be forced to face and deal with some economic risks and societal challenges that are new to them. Comparable risks and challenges may be relevant for them as well, if they actively join global supply chains through other channels in addition to MNEs’ FDI. The project will deal with this research question by further developing related theoretical models and by providing sophisticated firm-level empirical analysis on related hypotheses derived from the theoretical models.

Learn more about the KCG Project “Modelling economic and social dimensions of global supply chains”