Multinationals FDI and uncertainty: an exposition

In search of more satisfactory explanations for the recent surges in foreign direct investment (FDI), an emerging literature has focused on the role of uncertainty and, in particular, exchange rate volatility. Existing investigations have indicated mixed results regarding multinationals' FDI reponse to changes in return uncertainty. This study constructs a stochastic model of FDI by multinationals under cost uncertainty and highlights some of the fundamental parameters of the FDI-uncertainty connection. The results provide some explanations for the existing contradictory results in the literature.