Institutional Uncertainty, Economic Integration, and Vertical Foreign Direct Investment Decisions

Michael Funke and Yu-Fu Chen

Quantitative Macroeconomics Working Papers from Hamburg University, Department of Economics

Abstract: In this paper we analyse the impact of institutional uncertainty on vertical foreign direct investment (FDI) strategies. We also consider the impact of economic integration upon FDI decisions. The paper follows the real options approach, which allows investigating the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to institutional uncertainty and investments are partially reversible. Across the board we find that institutional uncertainty can be very detrimental to FDI decisions while economic integration leads to an increasing benefit of investing abroad.

Keywords: Institutional uncertainty; Political risk; Real options; Vertical foreign direct investment (search for similar items in EconPapers)
JEL-codes: D81 D92 E22 F21 (search for similar items in EconPapers)
Date: 2011-08
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/FDIopen.pdf (application/pdf)

Related works:
Journal Article: Institutional Uncertainty, Economic Integration, and Vertical Foreign Direct Investment Decisions (2011)
Working Paper: Institutional uncertainty, economic integration and vertical foreign direct investment decisions (2009)
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:ham:qmwops:21108b

Access Statistics for this paper

More papers in Quantitative Macroeconomics Working Papers from Hamburg University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().