A number of significant qualitative implications emerge from the result in Eq. (8).
Throughout the following discussion we assume that there is no change in any of
the domestic parameters and the only change in the foreign parameters is an
adjustment in the volatility (as opposed to the level) of cost associated with the
firm’s production facilities located abroad (da ~0). For the purpose of discussion,
suppose there is a rise in the volatility (da > 0). The question is: under what conditions
would the firm’s respones be to increase or decrease its facility holdings abroad?