Political risk, economic integration, and the foreign direct investment decision

Yu-Fu Chen, Michael Funke

    Research output: Working paperDiscussion paper

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    In this paper we analyse the impact of policy uncertainty on foreign direct investment 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 political uncertainty and investments are partially reversible. Across the board we find that political uncertainty can be very detrimental to FDI decisions while economic integration leads to an increasing benefit of investing abroad.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2008

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    ISSN (Print)1473-236X


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

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