This paper investigates the strategic incentives for vertical foreign investment by risk-neutral oligopolistic firms and the effect of exchange rate uncertainty on such investment. Firms competing in a domestic final good market meet their input requirements through import. They have the option...

We provide a theoretical framework which addresses exchange rate pass-through within the setting of vertically related markets. In particular, foreign firms' price adjustment in response to an exchange rate shock is evaluated. This framework enables us to study the importance of cost effects of...