# 2 Related Literature

Our paper is closely related to the existing macro and micro literature that evaluates the e¤ects of foreign investments on economic growth and performance. At the macro level, the literature has primarily focused on the role of FDI in country economic growth, and found only weak support for an exogenous positive e¤ect of FDI. Existing evidence shows the e¤ect of FDI to be strongly conditional on local conditions such as human capital and ...nancial sector development (see, for example, Borensztein et al., 1998; Alfaro et al., 2004; Carkovic and Levine, 2005).

The micro-level literature, evaluating the role of foreign ownership in economic performance at establishment level, has found mainly an adverse e¤ect. Most studies ...nd foreign ownership to have a signi...cant negative e¤ect on plant survival and stability, and argue that MNCs’ footloose nature makes them more volatile than purely domestic ...rms. Görg and Strobl (2003), for example, ...nd Irish establishments with foreign ownership to be more likely than indigenous plants to exit the market after controlling for other plant and industry speci...c characteristics. Gibson and Harris (1996) and Bernard and Sjöholm (2003) reach similar conclusions for New Zealand and Indonesia, respectively. Bernard and Jensen (2007) focus on domestic multinationals in the United State and ...nd them to be more likely than non-multinational ...rms to shut down home-country plants.<sup>5</sup> Relatively few analyses have examined the role of foreign ownership in establishment responses to economic crises. Alvarez and Görg (2007), investigating the response of multinational and domestic ...rms to an economic downturn in Chile, do not ...nd multinationals to react to the economic crisis di¤erently than domestic ...rms. Desai, Foley and Forbes (2008), evaluating the response of multinational and local ...rms to sharp currency depreciations, ...nd sales, assets, and investments to increase signi...cantly more for U.S. multinational a¢ liates than for local ...rms. Kalemli-Ozcan et al. (2011) utilize a ...rm-level database from six Latin American countries between 1990 to 2005 to compare investment undertaken by domestic exporters to that of foreign-owned exporters in the aftermath of currency crises. They ...nd that, conditional on ...rm exposure to short term foreign currency debt, foreign-owned exporters increase investment signi...cantly more than domestic exporters.

Di¤erent from the above studies’ focus on regional economic slowdowns and currency depreciations, our analysis draws from the recent Global Financial Crisis. We look to the global coverage and the considerable heterogeneity of the recent crisis to examine the di¤erent roles of foreign ownership in establishments’ reactions to economic shocks. Furthermore, in contrast to previous studies’focus on evaluating the average e¤ect of foreign ownership, we seek to explore the channels through which foreign ownership can a¤ect establishment

> 5 Another notable literature on the host-country e¤ects of FDI focuses on the productivity spillovers of multinational ...rms. See, for example, Haddad and Harrison (1993), Aitken and Harrison (1999), Blomström and Sjöholm (1999), and Javorcik (2004) for studies in this area.

6