The Hazard Rate of Foreign Direct Investment in Transition Countries: A Direct Estimation of a Real Option Model

Enrico Pennings

No 4801, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The hazard rate of investment is derived within a real option model, and its properties are analysed in order to directly study the relation between uncertainty and investment. Maximum likelihood estimates of the hazard are calculated using a sample of MNEs that have invested in Central and Eastern Europe over the period 1990-98. Employing a standard, parametric specification of the hazard, our measure of uncertainty has a negative effect on investment, but the model is unable to control for non-linearities in the relationship. The option-based hazard shows the importance of non-linearities and exhibits a significant value of waiting, though it is independent of our measure of uncertainty. This finding supports the existence of alternative channels through which uncertainty can affect investment.

Keywords: Hazard rates; Uncertainty; Foreign investment (search for similar items in EconPapers)
JEL-codes: C40 D81 F21 (search for similar items in EconPapers)
Date: 2004-12
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP4801 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4801

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4801

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().