Clearly, some of the fundamental parameters that identify the multinationals’
FDI response to changes in return uncertainty are the underlying degree of risk
aversion (/I), the returns-to-scale character of production technology (m) and the
existing value of production facilities located abroad (rP) relative to its scaled
output (mx). The result that technology of production plays a crucial role in the
FDI-uncertainty connection is also exhibited in the empirical study of Kogut and
Chang ( 1996). Furthermore, consistent with the role of KY in Eq. (8), the empirical
study of Campa (1993) concluded that the negative correlation between FDI and
uncertainty is most pronounced for industries where prior FDI are relatively high.