Yongil Jeon (Central Michigan University) Taekwon Kim (Yonsei University) Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas)
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This paper examines the role of uncertainty and imperfect local knowledge in foreign direct investment. The main idea comes from the literature on investment under uncertainty, such as Pindyck (1991) and Dixit and Pindyck (1994). We empirically test .the value of waiting. with a dataset on foreign direct investment (FDI). Many factors (e.g., political and economic regulations) as well as uncertainty and the risks due to imperfect local knowledge, determine the attractiveness of FDI. The uncertainty and irreversibility of FDI links the time interval between permission and actual execution of such FDI with explanatory variables, including information on foreign (home) countries and domestic industries. Common factors, such as regulatory change and external shocks, may affect the uncertainty when foreign investors make irreversible FDI decisions. We derive testable hypotheses from models of investment under uncertainty to determine those possible factors that induce delays in FDI, using Korean data over 1962 to 2001.
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number
2004-44.
Length: 33 pages Date of creation: Jul 2004 Date of revision: Handle: RePEc:uct:uconnp:2004-44
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Find related papers by JEL classification: F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
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