This paper studies the effect of energy market integration (EMI) on foreign direct investment (FDI). EMIs diminish energy uncertainty and price volatility in the host country and affect FDI through two channels: first, by harmonizing energy prices and, second, by reducing price dispersion. FDI...

In order to diversify their risks, firms facing increased demand uncertainty in their domestic market may choose to increase their investment abroad by transferring production to the more stable host economies. Using a gravity model, we test the assumption that foreign direct investment is...