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 language | English |
|---|---|
| Pages (from-to) | 593-612 |
| Number of pages | 20 |
| Journal | Open Economies Review |
| Volume | 22 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - Sept 2011 |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 10 Reduced Inequalities
Keywords
- Institutional uncertainty
- Political risk
- Real options
- Vertical foreign direct investment
- EQUILIBRIUM
- STRATEGIES
- TRADE
- COUNTRIES
- GROWTH
- POLICY
- COSTS
- RISK
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