Host-Country Uncertainty, Regional Diversification, and Foreign Investment

초록

This study investigates the impact of the host country's uncertainty on foreign investments using Korean firms' data. Firm-level data are collected from the Survey of Business Activities, covering 11,529 firm-country pairs from 2008 to 2021. The empirical results indicate that the host-country uncertainty negatively impacts firms' foreign investments. However, this negative effect diminishes as the number of countries with foreign affiliates increases. Moreover, the mitigating effect of uncertainty is stronger when foreign affiliates are spread across multiple continents rather than being concentrated in a single region. The results confirm that regional diversification helps firms reduce risks associated with uncertainty.

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