International Monopoly under Uncertainty
AbstractA domestic monopolistic firm has the option to service a foreign market through export or by setting up a plant in the host country under exchange rate uncertainty. We analyze the effect of the parameters of the demand and cost functions on hysteresis. We also show results on the effect of taxation and labor cost in attracting or avoiding relocation. We find that when the firm is multinational it pays more taxes. Much more importantly, a tax rate reduction is effective in attracting investment and avoiding relocation. When the firm is multinational it also incurs lower labor costs. However, labor cost is not determinant in the location of production.
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Bibliographic InfoPaper provided by Department of Economic Theory and Economic History of the University of Granada. in its series ThE Papers with number 07/05.
Length: 16 pages
Date of creation: 31 Dec 2007
Date of revision:
Exchange rate uncertainty; real option; taxation; labor cost.;
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F31 - International Economics - - International Finance - - - Foreign Exchange
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- Sung, Hongmo & Lapan, Harvey E, 2000.
"Strategic Foreign Direct Investment and Exchange-Rate Uncertainty,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 411-23, May.
- Sung, Hongmo & Lapan, Harvey E., 2000. "Strategic Foreign Direct Investment and Exchange Rate Uncertainty," Staff General Research Papers 1335, Iowa State University, Department of Economics.
- Dixit, A., 1988.
"Entry And Exit Decisions Under Uncertainty,"
91, Princeton, Department of Economics - Financial Research Center.
- Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November.
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