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What Drives Capital Flows? The Case of Cross-Border M&A Activity and Financial Deepening

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Author Info
Julian di Giovanni (Department of Economics, University of California, Berkeley)

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Abstract

What macroeconomic and financial variables play key roles in the foreign direct investment decision (FDI) of firms? This question is addressed in this paper using a large panel data set of cross-border Merger & Acquisition (M&A) deals for the period 1990-1999. Various econometric specifications are built around the simple "gravity model" commonly used in the trade literature. Interestingly, financial variables and other institutional factors seem to play a significant role in M&A flows. In particular the size of financial markets, as measured by the stock market capitalization to GDP ratio and the credit provided to the private sector by financial institutions to GDP ratio in the domestic economy, have sizeable positive effects on the incentives for domestic firms to invest abroad.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1004&context=iber/cider
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Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number 1004.

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Date of creation: 01 Jan 2002
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Handle: RePEc:cdl:ciders:1004

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Keywords: mergers & acquisitions; cross-border; capital flows; financial deepening;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring. [Downloadable!] (restricted)
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  11. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-75, December. [Downloadable!] (restricted)
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  14. Andrei Shleifer & Robert W. Vishny, 2001. "Stock Market Driven Acquisitions," NBER Working Papers 8439, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Blonigen, Bruce A, 1997. "Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment," American Economic Review, American Economic Association, vol. 87(3), pages 447-65, June. [Downloadable!] (restricted)
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  19. Rose, Andrew K, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," CEPR Discussion Papers 2329, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  22. Motta, M., 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," Research Institute of Industrial Economics Working Papers 465, Research Institute of Industrial Economics (IFN).
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  1. Huizinga, Harry & Voget, Johannes & Wagner, Wolf, 2009. "International Taxation and Takeover Premiums in Cross-border M&As," CEPR Discussion Papers 7182, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Görg, Holger & Hijzen, Alexander & Manchin, Miriam, 2007. "Cross-Border Mergers & Acquisitions and the Role of Trade Costs," CEPR Discussion Papers 6397, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Barbara Berkel, 2006. "The EMU and German Cross-Border Portfolio Flows," MEA discussion paper series 06110, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  4. Barbara Berkel, 2004. "Institutional Determinants of International Equity Portfolios - A Country-Level Analysis," MEA discussion paper series 04061, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  5. Holger Breinlich, 2006. "Trade Liberalization and Industrial Restructuring through Mergers and Acquisitions," Economics Discussion Papers 619, University of Essex, Department of Economics. [Downloadable!]
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  6. Christian Daude & Marcel Fratzscher, 2007. "The pecking order of cross-border investment," CGFS Papers chapters, in: Bank for International Settlements (ed.), Research on global financial stability: the use of BIS international financial statistics, volume 29, pages 53-89 Bank for International Settlements. [Downloadable!]
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  7. Daniel Millimet & Abdullah Kumas, 2007. "Reassessing the Effects of Bilateral Tax Treaties on US FDI Activity," Departmental Working Papers 0704, Southern Methodist University, Department of Economics. [Downloadable!]
  8. Gian Maria Milesi-Ferretti & Philip R. Lane, 2004. "International Investment Patterns," IMF Working Papers 04/134, International Monetary Fund. [Downloadable!]
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  9. Bertrand, Olivier & Mucchielli, Jean-Louis & Zitouna, Habib, 2004. "Location Choices of Multinational Firms: The Case of Mergers and Acquisitions," Discussion Paper Series 26170, Hamburg Institute of International Economics. [Downloadable!]
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  10. Ronald B. Davies & Delia Ionascu & Helga Kristjánsdóttir, . "Estimating the Impact of Time-Invariant Variables on FDI with Fixed Effects," University of Oregon Economics Department Working Papers 2007-8, University of Oregon Economics Department. [Downloadable!]
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  11. Barry Eichengreen & Hui Tong, 2005. "Is China's FDI Coming at the Expense of Other Countries?," NBER Working Papers 11335, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Davies, Ronald & Norback, Pehr-Johan & Tekin-Koru, Ayca, 2007. "The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata," MPRA Paper 6031, University Library of Munich, Germany. [Downloadable!]
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  13. Claessens, Stijn & Van Horen, Neeltje, 2007. "Location decisions of foreign banks and competitive advantage," Policy Research Working Paper Series 4113, The World Bank. [Downloadable!]
  14. Nicolas Coeurdacier & Roberto A. De Santis & Antonin Aviat, 2009. "Cross-Border Mergers and Acquisitions: Financial and Institutional Forces," Working Paper Series 1018, European Central Bank. [Downloadable!]
  15. Barbara Berkel, 2006. "The EMU and German Cross-Border Portfolio Flows," MEA discussion paper series 06110, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  16. Juan Piñeiro Chousa, & Krishna Chaitanya, & Artur Tamazian, 2008. "Does Growth & Quality of Capital Markets drive Foreign Capital? The case of Cross-border Mergers & Acquisitions from leading Emerging Economies," William Davidson Institute Working Papers Series wp911, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  17. Paula Cristina da Silva Ferreira Neto Rodrigues & António Abílio Garrido Brandão & António de Melo Cerqueira, 2008. "The Macroeconomic Determinants of Cross Border Mergers and Acquisitions and Greenfield Investments," FEP Working Papers 281, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
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