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Contents Introduction

This paper analyzes foreign direct investment (FDI) by multinational corporations (MNCs) investing in Asia’s 14 largest economies over the last two decades, focusing on trends during three region-wide, economic downturns surrounding 1998, 2001, and 2009. It first finds that FDI flows were highly volatile and often declined during downturns and in other years; in other words, no consistent pattern is observed in FDI flows during downturns. In contrast, ratios of FDI stocks to GDP, probably the best measure of MNC presence in these economies that is available in a timely manner, tended to increase in almost all countries experiencing downturns (Indonesia in 1999 being the major exception). These increases partially reflect declining values of domestic currencies relative to the U.S. dollar in affected economies. FDI stock-GDP ratios also tended to increase for Japanese and U.S. MNCs investing in these economies. During downturns, ratios of Japanese affiliate sales to GDP often fell more than FDI stock-GDP ratios, but Japanese affiliate shares of host country employment often fell relatively little. On the other hand, there were more consistent upward trends in sales-GDP and FDI stock-GDP ratios for U.S. affiliates during downturns, but their shares of host economy employment fell or stagnated in many of these cases.