Going Multinational under Exchange Rate Uncertainty
Data(s) |
06/02/2012
06/02/2012
01/02/2005
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Resumo |
Published as an article in: Journal of International Money and Finance, 2010, vol. 29, issue 6, pages 1171-1191. A domestic exporting firm faces exchange rate uncertainty and has the option to install capacity abroad, thus becoming multinational. We analyze when the firm should exercise such an option optimally in the context of a Cournot market equilibrium. There are four main findings. First, the degree of hysteresis in foreign direct investment (FDI) grows as the number of firms increases. Second, a maintenance cost may induce the exporting firm to sustain losses, i.e. dumping. Third, the FDI-inducing effect of tariffs is decreasing in the number of firms. Fourth, FDI reduces exchange rate pass-through, especially for the range of exchange rate values that would otherwise have been maximal. |
Identificador |
1988-088X http://hdl.handle.net/10810/6746 RePEc:ehu:dfaeii:200505 |
Idioma(s) |
eng |
Publicador |
University of the Basque Country, Department of Foundations of Economic Analysis II |
Relação |
DFAEII 2005.05 |
Direitos |
info:eu-repo/semantics/openAccess |
Palavras-Chave | #foreign direct investment #option pricing #exchange rate volatility |
Tipo |
info:eu-repo/semantics/workingPaper |