Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences
Abstract
I estimate the impact of foreign
-
owned large plant closures on local firms. I identify 41 such
events
in Hungary and assign comparable control cities with foreign
-
owned large plants
operating in the same industry and not closing. I use a firm
-
level panel database of
Hungarian firms between 1992 and 2012. I do a difference
-
in
-
differences estimation
compari
ng outcomes of firms in the treated and control areas, before and after the plant
closure. I find that after the foreign
-
owned large plant closures sales of nearby firms
decreased by 6 percentage points and employment decreased by 3 percentage points on
av
erage. Firms operating in local services were hurt even more, suggesting that reduced local
purchasing power due to the layoffs is a significant channel of the local plant closure effect.
Firms operating in the supplier industry of the closing plant also d
ecreased employment
more than average, suggesting that input
-
output linkages play an important role in the
propagation of negative shocks. In contrast, firms in the industry of the closing plant
increased their employment, suggesting that they could benefi
t from the increased local labor
supply. I also find that low
-
productivity firms were hurt more by the plant closures than
high
-
productivity firms