On the behavior of global multinational enterprises during the 1997 Asian financial crisis

Abstract

In this paper, we examine the impact that the 1997 financial crisis had on the number and value of investments made by global multinational enterprises in Korea. Prior to the onset of the crisis, our results indicate that the real value of investments made by MNEs were primarily motivated by the sharp drop in value of the host economy's currency and imports. MNE decisions regarding the number of FDI differed substantially by country. US and Japanese MNEs decisions were largely motivated by labor strike and import considerations, while UK and French MNEs were guided primarily by exchange rate and institutional factors. After the the onset of the crisis, Japanese MNEs took a very conservative approach to Korean FDI, both in terms of the number and value of projects. US, UK and French MNEs adopted a 'stop and go' approach to FDI, particularly in terms of the real value of projects.