Institutional uncertainty, economic integration, and vertical foreign direct investment decisions

Yu-Fu Chen, Michael Funke

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    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.

    Original languageEnglish
    Pages (from-to)593-612
    Number of pages20
    JournalOpen Economies Review
    Volume22
    Issue number4
    DOIs
    Publication statusPublished - Sep 2011

    Keywords

    • Institutional uncertainty
    • Political risk
    • Real options
    • Vertical foreign direct investment
    • EQUILIBRIUM
    • STRATEGIES
    • TRADE
    • COUNTRIES
    • GROWTH
    • POLICY
    • COSTS
    • RISK

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