The above sections presented a stochastic partial equilibrium model of decision
by multinationals to locate some production facilities abroad in response to changes
in cost uncertainty and identified some of the fundamental parameters that characterize
the FDI-uncertainty connection. In particular, when the cost (and hence return)
uncertainty associated with multinational FDI emanates from exchange rate volatility,
the model identifies a connection between FDI and exchange rate volatility.
Indications are that the contradictory results in the literature regarding the
FDI-uncertainty connection may be explained in terms of differences in degrees of
risk aversion by corporate decision makers, returns-to-scale characters of produoction
technologies and prior production capacities held abroad.