Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty

@inproceedings{Goldberg1994ForeignDI,
  title={Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty},
  author={Linda S. Goldberg and Charles D. Kolstad},
  year={1994}
}
Variable real exchange rates influence the country choice for location of production facilities by a multinational enterprise. With risk averse investors and fixed productive factors, a parent company should not be indifferent to the choice of production capacity location, even when the expected costs of production are identical across countries. If a non-negative correlation exists between real export demand shocks and real exchange rate shocks, the multinational will optimally locate some of… CONTINUE READING

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