The Hazard Rate of Foreign Direct Investment: A Structural Estimation of a Real-option Model
The hazard rate of investment is derived within a real-option model, and its properties are analysed so as to directly study the relation between uncertainty and investment. Maximum likelihood estimates of the hazard are calculated using a sample of multinational enterprises (MNEs) that invested in Central and Eastern Europe over the period 1990-98. Employing a standard, non-parametric specification of the hazard, our measure of uncertainty has a negative effect on investment, but the reduced-form model is unable to control for nonlinearities in the relationship. The structural estimation of the option-based hazard is instead able to account for the nonlinearities and exhibits a significant value of waiting, although the latter is independent of our measure of uncertainty. This finding supports the existence of alternative channels through which uncertainty can affect investment. Copyright 2006 Blackwell Publishing Ltd.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 68 (2006)
Issue (Month): 5 (October)
|Contact details of provider:|| Postal: Manor Rd. Building, Oxford, OX1 3UQ|
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0305-9049
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0305-9049|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carstensen, Kai & Toubal, Farid, 2004.
"Foreign direct investment in Central and Eastern European countries: a dynamic panel analysis,"
Journal of Comparative Economics,
Elsevier, vol. 32(1), pages 3-22, March.
- Carstensen, Kai & Toubal, Farid, 2003. "Foreign Direct Investment in Central and Eastern European Countries: A Dynamic Panel Analysis," Kiel Working Papers 1143, Kiel Institute for the World Economy (IfW).
- Kai Carstensen & Farid Toubal, 2004. "Foreign Direct Investment in Central and Eastern European Countries: A Dynamic Panel Analysis," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00311585, HAL.
- Carstensen, Kai & Toubal, Farid, 2004. "Foreign direct investment in Central and Eastern European countries: A dynamic panel analysis," Munich Reprints in Economics 19965, University of Munich, Department of Economics.
- Robert Lensink, 2002. "Is the uncertainty-investment link non-linear? Empirical evidence for developed economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 138(1), pages 131-147, March.
- Luigi Guiso & Giuseppe Parigi, 1999. "Investment and Demand Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 185-227.
- Guiso, L. & Parigi, G., 1996. "Investment and Demand Uncertainty," Papers 289, Banca Italia - Servizio di Studi.
- Guiso, Luigi & Parigi, Giuseppe, 1996. "Investment and Demand Uncertainty," CEPR Discussion Papers 1497, C.E.P.R. Discussion Papers.
- Harchaoui, Tarek M & Lasserre, Pierre, 2001. "Testing the Option Value Theory of Irreversible Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 141-166, February.
- Harchaoui, T. & Lasserre, P., 1995. "Testing the Option Vakue Theory of Irreversible Investment," G.R.E.Q.A.M. 95b04, Universite Aix-Marseille III.
- Tarek M. Harchaoui & Pierre Lasserre, 1999. "Testing the Option Value Theory of Irreversible Investment," CIRANO Working Papers 99s-35, CIRANO.
- Tarek M. Harchaoui & Pierre Lasserre, 1995. "Testing the Option Value Theory of Irreversible Investment," CIRANO Working Papers 95s-41, CIRANO.
- Tarek M. Harchaoui & Pierre Lasserre, 1999. "Testing the Option Value Theory of Irreversible Investment," Cahiers de recherche du Département des sciences économiques, UQAM 9905, Université du Québec à Montréal, Département des sciences économiques.
- Darby, Julia, et al, 1999. "The Impact of Exchange Rate Uncertainty on the Level of Investment," Economic Journal, Royal Economic Society, vol. 109(454), pages 55-67, March.
- Julia Darby & Andrew Hughes Hallett & Jonathan Ireland & Laura Piscitelli, "undated". "The Impact of Exchange Rate Uncertainty on the Level of Investment," ICMM Discussion Papers 49, Department of Economics University of Strathclyde.
- Darby, Julia & Hughes Hallett, Andrew & Ireland, Jonathan & Piscitelli, Laura, 1998. "The Impact of Exchange Rate Uncertainty on the Level of Investment," CEPR Discussion Papers 1896, C.E.P.R. Discussion Papers.
- Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
- Geert Bekaert & Campbell R. Harvey, 1995. "Emerging Equity Market Volatility," NBER Working Papers 5307, National Bureau of Economic Research, Inc.
- Leahy, John V & Whited, Toni M, 1996. "The Effect of Uncertainty on Investment: Some Stylized Facts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 64-83, February.
- John V. Leahy & Toni M. Whited, 1995. "The Effect of Uncertainty on Investment: Some Stylized Facts," NBER Working Papers 4986, National Bureau of Economic Research, Inc.
- Favero, Carlo A & Pesaran, M Hashem & Sharma, Sunil, 1994. "A Duration Model of Irreversible Oil Investment: Theory and Empirical Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages 95-112, Suppl. De.
- Hans-Werner Sinn & Alfons J. Weichenrieder, 1997. "Foreign direct investment, political resentment and the privatization process in eastern Europe," Economic Policy, CEPR;CES;MSH, vol. 12(24), pages 177-210, 04.
- Sinn, Hans-Werner & Weichenrieder, Alfons J., 1997. "Foreign direct investment, political resentment and the privatization process in eastern Europe," Munich Reprints in Economics 19562, University of Munich, Department of Economics.
- Ferderer, J Peter, 1993. "The Impact of Uncertainty on Aggregate Investment Spending: An Empirical Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 30-48, February.
- De Santis, Giorgio & imrohoroglu, Selahattin, 1997. "Stock returns and volatility in emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 561-579, August.
- Giorgio De Santis & Selahattin Imrohoroglu, 1994. "Stock returns and volatility in emerging financial markets," Discussion Paper / Institute for Empirical Macroeconomics 93, Federal Reserve Bank of Minneapolis.
- Aymo Brunetti & Beatrice Weder, 1998. "Investment and institutional uncertainty: A comparative study of different uncertainty measures," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(3), pages 513-533, September.
- Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-679, June.
- Goldberg, Linda S, 1993. "Exchange Rates and Investment in United States Industry," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 575-588, November.
- Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
- Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
- Blandon, Josep Garcia, 2001. "The timing of foreign direct investment under uncertainty: evidence from the Spanish banking sector," Journal of Economic Behavior & Organization, Elsevier, vol. 45(2), pages 213-224, June.
- J. Hatzius, 1997. "Foreign direct investment," LSE Research Online Documents on Economics 20351, London School of Economics and Political Science, LSE Library.
- Vivek Ghosal & Prakash Loungani, 2000. "The Differential Impact of Uncertainty on Investment in Small and Large Businesses," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 338-343, May.
- Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 619-643, February.
- Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 29-59, Supplemen.
- Philip Stevens, 2002. "The Role of Efficiency as an Explanation of International Income Differences," NIESR Discussion Papers 205, National Institute of Economic and Social Research.
- J Hatzius, 1997. "Foreign Direct Investment," CEP Discussion Papers dp0336, Centre for Economic Performance, LSE. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bla:obuest:v:68:y:2006:i:5:p:569-593. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.