Kiel Working Papers, Kiel Institute for World Economics
No 1805:
Cross-Border Mergers and Greenfield Foreign Direct Investment
Ignat Stepanok
Abstract: I present a model of international trade and foreign
direct investment (FDI), where FDI is comprised of greenfield FDI and
mergers and acquisitions (M&A). Working in a monopolistically competitive
environment, merging firms do not reduce competition. Mergers are motivated
by efficiency gains and transfer of technology and expertise. Following
empirical evidence, I model greenfield investors as the more productive
group relative to M&A firms, which are in turn more productive than
exporters. The model has two symmetric countries and generates two-way
flows of both M&A and greenfield FDI. Greater proximity to a market makes
more firms choose greenfield FDI over M&A when investing there. Empirical
evidence supports this result
Keywords: Foreign direct investment, mergers, acquisitions, greenfield, firm heterogeneity; (follow links to similar papers)
JEL-Codes: F12,; F23; (follow links to similar papers)
27 pages, November 2012
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