in host countries with large negative demand shocks. We construct a direct measure of production linkages by examining the input-output relationship between the primary products of the subsidiaries and parent ...rms, i.e., the input-cost share of the subsidiary’s primary product category in the parent ...rm’s ...nal-good production. Subsidiaries sharing stronger vertical production linkages with the parents are expected to exhibit more resilience during the crisis.<sup>4</sup> The second aspect of foreign ownership concerns the ...nancial linkages between MNC subsidiaries and parent ...rms. An emerging strand of theoretical studies such as Antras, Desai and Foley (2009) highlights MNCs’internal capital markets and investment ‡ows from parents to subsidiaries. In this analysis, we consider how MNCs’internal capital markets lower subsidiaries’dependence on host-country credit conditions, an advantage particularly important when host countries experience credit crunches. To examine this hypothesis, we construct a measure of ...nancial linkages between parents and subsidiaries in each industry using the ratio of investments in subsidiaries relative to total assets. We also consider an alternative approach by constructing a measure of sectoral ...nancial dependence and investigating how the e¤ect of foreign ownership varies with the reliance on ...nancial capital. According to our hypothesis, the e¤ect of foreign ownership on establishment responses to credit crunches should be more pronounced in industries with stronger intra-...rm ...nancial linkages and greater ...nancial dependence.

To establish the impact of foreign ownership and linkages on establishment responses to negative economic shocks, we explore the time variation of the data and separately consider the non-crisis (2005-2007) and the crisis (2007-2008) periods. This enables us to use the noncrisis period as a benchmark and compare the e¤ect of foreign ownership during the crisis with its e¤ect in non-crisis years. The comparison helps us identify the e¤ects of foreign ownership that are exclusive to crises periods and the unique role of production and ...nancial linkages in lending MNC subsidiaries greater resilience to negative demand and ...nancial shocks.

Our paper o¤ers new ...ndings on the role of foreign ownership in establishments’resilience to economic crises. We ...nd that MNC subsidiaries responded on average better to the Global Financial Crisis than local controls with similar economic characteristics. Moreover, the advantage of foreign ownership was clearly pronounced during the crisis, but relatively muted during non-crisis years. Compared to local controls, MNC subsidiaries exhibited greater resilience to the crisis but not signi...cantly better performance during normal economic periods.

By investigating why foreign ownership led to divergent performance during the crisis, our analysis also provides one of the ...rst micro evidence on the role of production and ...nancial

> investigating the role of global supply chains, argue that increasing vertical specialization contributes to the greater contraction of world trade relative to total output. Bricongne, Fontagnè, et al. (2009) present an alternative argument and show that the extensive presence of supply chains does not automatically explain why world trade overshot the drop in world GDP.

> 4 Albeit previously unidenti...ed, this hypothesis is not entirely unexpected. Bernard et al. (2009) have shown that intra-...rm trade fell less than unrelated-party trade during the Asian ...nancial crisis.

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