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Trade Liberalization and Industrial Restructuring through Mergers and Acquisitions

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Author Info
Holger Breinlich
Abstract

This paper analyzes mergers and acquisitions (M&A) as a previously neglected channel ofindustrial restructuring in the face of trade liberalization. Using the Canada-United StatesFree Trade Agreement of 1989 as a natural experiment, I show that trade liberalization leadsto a significant increase in M&A activity. I also provide evidence that resources aretransferred from less to more productive firms in the process and that the magnitude of theoverall transfer is quantitatively important. Taken together, these results suggest that M&A isan important alternative to the previously studied adjustment channels of firm andestablishment closure and contraction. This has strong implications for the design ofcompetition policy in the wake of trade liberalizations since M&A may offer a more efficientway of transferring resources than contraction and closure of low productivity firmscombined with internal growth of more efficient firms.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0717.

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Date of creation: Mar 2006
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Handle: RePEc:cep:cepdps:dp0717

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Keywords: Mergers and Acquisitions Trade Liberalization International Trade CUSFTA

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
L4 - Industrial Organization - - Antitrust Issues and Policies

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