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Please use this identifier to cite or link to this item: http://hdl.handle.net/10481/31544

Title: Going multinational under exchange rate uncertainty
Authors: Aray, Henry
Gardeazabal, Javier
Issue Date: 2008
Abstract: When an exporting firm should exercise the option to invest abroad under exchange rate uncertainty in the context of a Cournot market equilibrium is analyzed. The model shows that the degree of histeresis in direct investment grows with the number of firms in the industry. We compute the market value of the domestic fir and foreign competitors taking into account the effect of the option held by the domestic producer. When there are sunk maintenance costs and the number of firms is close to the long run equilibrium number of firms, there may be dumping for a range of exchange rate values. Tariffs have the well known FDI-inducing effect, more so in less competitive markets, and are more effective at deterring delocation. A tariff might the undesired effect of inducing dumping.
Sponsorship: Financial support from Spanish Ministry of Education and Science (grant SEJ2006-0630) and BBVA foundation is acknowledged.
Publisher: Universidad de Granada. Departamento de Teoría e Historia Económica
Series/Report no.: The Papers;08/9
Keywords: Foreign direct investment
Real option
URI: http://hdl.handle.net/10481/31544
Rights : Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License
Citation: Aray, H.; Gardeazabal, J. Going multinational under exchange rate uncertainty. Universidad de Granada. Departamento de Teoría e Historia Económica (2008). (The Papers; 08/19). [http://hdl.handle.net/10481/31544]
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