search query: @indexterm Foreign investment / total: 1949
reference: 313 / 1949
| Author: | Sung, H. Lapan, H.E. |
| Title: | Strategic foreign direct investment and exchange-rate uncertainty |
| Journal: | International Economic Review
2000 : MAY, VOL. 41:2, p. 411-423 |
| Index terms: | Foreign investment Exchange rates Uncertainty Multinational companies Economic theory Risk Models |
| Freeterms: | Industrial plants |
| Language: | eng |
| Abstract: | This paper investigates how exchange-rate uncertainty affects the foreign direct investment decision of a risk-neutral multinational firm. It is assumed that the firm can open plants, each with decreasing average cost, in 2 different countries. Under certainty, the multinational firm would open only one plant. It is demonstrated that, with sufficient exchange-rate volatility, the firm can increase expected profits by opening several plants. It is also shown that if the multinational firm faces a competitor in the foreign market, the exchange risk, by inducing the multinational firm to open plants in both markets, may prevent entry by the local competitor. |
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