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Duopolistic Competition and Optimal Switching Time from Export to FDI in Uncertainty

Author

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  • Mankan M. Koné
  • Lota D.Tamini
  • Carl Gaigné

Abstract

This paper aimed to extend previous real option models to features of multinational firmsÕactivities such as market competition and trade barriers. Few researchers have studied multinationalsÕ optimal switching time from export to FDI using real options, and those who have done so have ignored trade policies and strategic interactions between firms. Yet,the presence of local competitors and trade costs influences the option value of waiting. We find that FDI in host countries with uncertain demand, strong competition and few barriers to trade will likely to be delayed with respect to immediate investment. In terms of policy implications, we find that the trade and competition policies of host countries have lower deterrent effects on FDI when uncertainty is reduced.

Suggested Citation

  • Mankan M. Koné & Lota D.Tamini & Carl Gaigné, 2017. "Duopolistic Competition and Optimal Switching Time from Export to FDI in Uncertainty," Cahiers de recherche CREATE 2017-03, CREATE.
  • Handle: RePEc:lvl:creacr:2017-03
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    Cited by:

    1. Campbell, Douglas L. & Lusher, Lester, 2019. "The impact of real exchange rate shocks on manufacturing workers: An autopsy from the MORG," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 12-28.

    More about this item

    Keywords

    Foreign Direct Investment; Imperfect Competition; Trade Liberalization; Real Options;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing

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