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Multinational Production and Global Shock Propagation during the Great Recession

Office of Alumni and External Relations    2020-12-25

Multinational Production and Global Shock Propagation during the Great Recession

Guest: Li Haishi, doctoral candidate, University of Chicago

Host: Prof. Qian Junhui, Antai

Time: Saturday, Dec 25th, 2020, 10:30-12:00

Venue: A507, Antai Building, Zoom

Abstract:

Both international trade and multinational production (MP) collapsed during the Great Recession. While trade fell almost globally, only some countries experienced the MP collapse. What fundamentals explained the MP and trade collapse, and how did they impact the differential real wage changes of countries? This paper answers these questions with a model of MP, trade, and sectoral linkages. The model highlights the frictions multinational enterprises (MNEs) face when they source from and sell to non-headquarters countries. These parameters govern MNEs’ vertical/horizontalness and render the rich interactions between MP and trade. To explore sources of the MP collapse, I consider shocks that affect MNEs’ productivity relative to local producers, as well as their vertical/horizontal-ness, among others. I find that 71% of cross-country variation in multinational foreign affiliate sales declines relative to GDP can be explained by these MNE-specific shocks. Among them, shocks that hit the five largest headquarters of outward MP propagate worldwide and explain 40%. Regarding the trade collapse, the MNE-specific shocks explain 19% of cross-country variation in trade declines relative to GDP. The within-country, sectoral final demand shocks explain 41% of the same, but those that hit the top 5 exporters only explain 0.3%. The MP collapse contributes much more to cross-country variation in real wage changes than trade collapse.

Bio

Haishi Li is an economics PhD student at the University of Chicago. His research interests include international trade and international macroeconomics. His research has been published in leading journals in economics, including Journal of International Economics and Journal of Real Estate Economics.


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