Option Value, Policy Uncertainty, and the Foreign Direct Investment Decision

Yu-Fu Chen and Michael Funke

No 234, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)

Abstract: In this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. The paper follows the real options approach, which allows to investigate the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to political uncertainty and investments are partially reversible. Across the board we find that political uncertainty can be very detrimental to FDI decisions.

Keywords: Real options; Investment; Foreign Direct Investment; Political Uncertainty (search for similar items in EconPapers)
JEL-codes: D81 D92 E22 F21 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Option value, policy uncertainty, and the foreign direct investment decision (2004)
Working Paper: Option Value, Policy Uncertainty, and the Foreign Direct Investment Decision (2003)
Working Paper: Option Value, Policy Uncertainty and The Foreign Direct Investment Decision (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hwwadp:26373

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