Multinational Investment under Uncertainty in the Chemical Processing Industries

• Published in: Journal of international business studies Vol. 25; no. 3; pp. 557 - 578
• Main Author: Campa, José Manuel
• Format: Journal Article
• Language: English
• Published: Basingstoke Academy of International Business and Western Business School, University of Western Ontario 01.09.1994; Palgrave Macmillan
• Series: Journal of International Business Studies
• Subjects: Business structures; Chemical industry; Chemicals industries; Competition; Competitive advantage; Demand; Demand uncertainty; Discount rates; Exchange rates; Expected values; Financial investments; Foreign exchange rate risk; Foreign exchange rates; Foreign investment; Hedging; Hypotheses; Industrial chemistry; Industrial market; Industrial production; Mathematical models; Multinational corporations; Multinational enterprises; Oil prices; Price uncertainty; Profits; Regression analysis; Stochastic models; Uncertainty; Volatility
• ISSN: 0047-2506; 1478-6990
• DOI: 10.1057/palgrave.jibs.8490212

This study uses a sample of chemical processing industries to evaluate the effect of two types of uncertainty on the decision to invest in an industry. It analyzes the effects of relative price uncertainty, through exchange rates and input prices, and demand uncertainty on the probability of expansion in a particular country. The study then focuses on the behavior of individual companies, and distinguishes companies by whether or not they are multinationals in the production of the product. The results confirm previous evidence that exchange rate uncertainty has a negative effect on capacity expansions by domestic corporations and no effect on investment by multinational corporations. Finally, the study also shows that expansions of production capacity in this industry are more likely to occur in those countries where capacity utilization is higher.