Multinational firms, monopolistic competition and foreign investment uncertainty

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Multinational firms, monopolistic competition ...
Arunish Chawla
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Last edited by MARC Bot
January 29, 2010 | History

Multinational firms, monopolistic competition and foreign investment uncertainty

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This is a model of multinational firms, which introduces option value of foreign direct investment, into a framework of Dixit-Stiglitz type monopolistic competition. Starting from a pure trading equilibrium and solving for the optimal investment rule gives a scale-up factor which implies existence of a wedge between markup revenues and foreign investment costs. Greater volatility and risk aversion increase this scale-up over foreign investment costs implying a delay in the exercise of FDI option, while growing market size and national income facilitate early exercise. The model is extended to include a Poisson jump process, which has policy implications for FDI reforms and explains 'wait and watch' behaviour of multinational firms better than a pure comparative advantage-trade cost framework does. While investment under uncertainty literature is based on the theory of call options, I solve 'FDI option' as a put option, thereby also enriching the theory of real options.

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Edition Availability
Cover of: Multinational firms, monopolistic competition and foreign investment uncertainty
Multinational firms, monopolistic competition and foreign investment uncertainty
2008, Centre for Economic Performance, London School of Economics and Political Science
Electronic resource in English

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Book Details


Published in

London

Edition Notes

Title from PDF file (viewed on Oct. 10, 2008).

"April 2008."

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.

Series
CEP discussion paper -- no. 866

Classifications

Library of Congress
HC10

The Physical Object

Format
Electronic resource

ID Numbers

Open Library
OL22649232M
LCCN
2008613829

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December 22, 2020 Edited by MARC Bot import existing book
January 29, 2010 Edited by WorkBot add more information to works
December 11, 2009 Created by WorkBot add works page