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The Proximity-Concentration Trade-Off under Goods Price and Exchange Rate Uncertainty

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Author Info
Yalcin, Erdal () (International Economics)

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Abstract

The underlying model combines the proximity-concentration trade-off framework with the real option approach. In contrast to the latest trade models, uncertainty is introduced as a continuous phenomenon. Furthermore, the model contains the innovation of comparing two option values simultaneously. The implementation of goods price uncertainty turns out to reduce the probability of entering a new market as an exporter. FDI becomes the optimal entry mode with increasing uncertainty. Additionally, the model is extended by implementing exchange rate uncertainty in a period of appreciation

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File URL: http://www.hha.dk/nat/wper/08-3_ey.pdf
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Publisher Info
Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 08-3.

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Length: 59 pages
Date of creation: 18 Mar 2008
Date of revision:
Handle: RePEc:hhs:aareco:2008_003

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Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
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Fax: +45 8615 5175
Web page: http://www.asb.dk/departments/nat.aspx
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Related research
Keywords: Export; FDI; Uncertainty; Real Option Approach;

Find related papers by JEL classification:
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, Investment, or Financing
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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This page was last updated on 2009-11-22.

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