Impact of Recent Global Financial Crisis on Mne Financing

THE IMPACT OF THE RECENT GLOBAL FINANCIAL CRISIS ON MNE FINANCING

ABSTRACT

The recent global financial crisis was as a result of the outburst of tensions accumulated over time in the banking and finance sector, which caused a ripple effect on the global economy that gave rise to the negative economic shock multinational enterprises (MNEs) experienced. In this essay, I discuss the impact of the recent global financial crisis, with particular emphasis on its effect on MNEs financing, how multinational enterprises responded to the crisis and the considerable heterogeneity in the role of foreign direct investment (FDI) ON MNEs financing.

INTRODUCTION

Unlike industrial crisis, typically caused by technological innovation and affecting a single or multiple industries, financial crisis can affect a country (e.g. Mexico in 1994), a region (e.g. Asia in 1998) or even the entire world (e.g. the great depression in the 1930s and the global financial crisis of 2007–2009). Financial crisis create economic stagnation, may overturn established economic and social order, and typically lead to record levels of unemployment, bankruptcies and often inflation (Wang et al, 2005). A well-developed and stable financial sector and an open international trading system are two key components of prosperous economies (Fingerand and Schuknecht,1999). Despite their dismal impact on business, little is known about how multinational firms (MNEs) responded effectively to the financial crisis (Desislava et al, 2012).

This essay is primarily aimed at understanding the impact of the recent global financial crisis on MNE financing. To this end, this essay will examine factors that led to the global financial crisis and its effects MNEs financing. For the purpose of this study, I would be using a few examples to analyze the impact of the crisis and the response of MNEs after the crisis....