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Greenfield, merger and acquisition, or export? Regulating the entry of multinational enterprises to a host-country market

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  • Cai, Dapeng
  • Karasawa-Ohtashiro, Yukio

Abstract

How should a welfare-maximizing host government regulate the entry of multinational enterprises (MNEs) that compete with local firms for the host-country market? We demonstrate that the optimal entry regulation depends on the size of the host market: The host government chooses to grant cross-border mergers and acquisitions (M&As) when the host market is sufficiently small; otherwise, it chooses direct export. Greenfield investment, on the other hand, will not be granted. Moreover, we show that for the case of M&A, the MNEs would acquire the most efficient local firm.

Suggested Citation

  • Cai, Dapeng & Karasawa-Ohtashiro, Yukio, 2018. "Greenfield, merger and acquisition, or export? Regulating the entry of multinational enterprises to a host-country market," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 397-407.
    • Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:397-407
    DOI: 10.1016/j.iref.2017.11.008
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    Cited by:

    1. Dapeng Cai & Yukio Karasawa‐Ohtashiro, 2021. "Why Do Mandated International Joint Ventures Still Exist?," Contemporary Economic Policy, Western Economic Association International, vol. 39(1), pages 236-247, January.

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    More about this item

    Keywords

    Foreign direct investment (FDI); Export; Merger and acquisitions (M&As); Greenfield investment; Multinational enterprises (MNEs);
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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