Working Papers, Department of Economics, Aarhus School of Business, University of Aarhus
The Proximity-Concentration Trade-Off under Goods Price and Exchange Rate Uncertainty
Abstract: The underlying model combines the proximity-concentration
trade-off framework with the real option approach. In contrast to the
latest trade models, uncertainty is introduced as a continuous phenomenon.
Furthermore, the model contains the innovation of comparing two option
values simultaneously. The implementation of goods price uncertainty turns
out to reduce the probability of entering a new market as an exporter. FDI
becomes the optimal entry mode with increasing uncertainty. Additionally,
the model is extended by implementing exchange rate uncertainty in a period
Keywords: Export; FDI; Uncertainty; Real Option Approach; (follow links to similar papers)
JEL-Codes: D81; D92; F17; F21; F23; (follow links to similar papers)
59 pages, March 18, 2008
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