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GTAP Resource #3798

"Multinational firms go away: A CGE Evaluation of Divestments"
by Gomez-Plana, Antonio and Maria Latorre

Most studies on Multinational Enterprises (MNEs) focus on the impact of their expansion (i.e., their arrival to new countries, the growth of inward or outward foreign direct investment (FDI) flows and the like). As examples, we have developed some research on the effects of FDI inflows in the Czech Republic in Latorre, Bajo-Rubio and Gómez-Plana, 2009; Latorre, 2010 and Latorre and Gómez-Plana, 2011. However, as the World Investment Report (WIR) points out, divestments are quite common among the operations of MNEs. “[They] affect between one quarter and four fifths of all FDI projects” (UNCTAD, WIR, 2009, p. 8). This phenomenon becomes more important in times of crisis, but is not limited to those times. It seems, thus, that divestments are an important side of the operations of MNEs for which evidence is scant in the specialised literature.

The present study builds a computable general equilibrium (CGE) to evaluate the effects of divestments made by MNEs. Divestments may appear in the statistics when the operations behind are not strictly related to reductions in production, such as, repatriated investments, reverse intra company loans and repayment of debts to parents. Therefore, we concentrate on divestments that entail a reduction of the operations undertaken by MNEs in some sectors of a particular host economy. The process itself may be caused by different reasons (e.g., offshoring, concentration of the MNE in its core activities, reductions in costs, poor performance of the affiliates…etc.), which are often difficult to be disentangled with the available data.

Resource Details (Export Citation) GTAP Keywords
Category: 2012 Conference Paper
Status: Published
By/In: Presented at the 15th Annual Conference on Global Economic Analysis, Geneva, Switzerland
Date: 2011
Created: Latorre, M. (4/20/2012)
Updated: Batta, G. (4/30/2012)
Visits: 1,214
- Foreign direct investment
- Europe (Western)

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