Option value, policy uncertainty and the foreign direct investment decision

Yu-Fu Chen, Michael Funke

    Research output: Working paperDiscussion paper

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    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.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2003

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.139
    ISSN (Print)1473-236X

    Keywords

    • Real options
    • Investment
    • Foreign direct investment
    • Political uncertainty

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