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

Erdal Yalcin

No 08-3, Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics

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

Keywords: Export; FDI; Uncertainty; Real Option Approach (search for similar items in EconPapers)
JEL-codes: D81 D92 F17 F21 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2008-03-18
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