Political Risk, Economic Integration, and the Foreign Direct Investment Decision
AbstractIn this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. We also consider the impact of economic integration upon FDI decisions. The paper follows the real options approach, which allows investigating the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to political uncertainty and investments are partially reversible. Across the board we find that political uncertainty can be very detrimental to FDI decisions while economic integration leads to an increasing benefit of investing abroad.
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Bibliographic InfoPaper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2008-06.
Date of creation: 2008
Date of revision:
Political Risk; Real Options; Investment; Foreign Direct Investment;
Other versions of this item:
- Yu-Fu Chen & Michael Funke, 2007. "Political Risk, Economic Integration, and the Foreign Direct Investment Decision," Dundee Discussion Papers in Economics 208, Economic Studies, University of Dundee.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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