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Trade Liberalization and Industrial Restructuring through Mergers and Acquisitions

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Holger Breinlich ()

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Abstract

This paper analyzes mergers and acquisitions (M&A) as a previously neglected channel of industrial restructuring in the face of trade liberalization. Using the Canada-United States Free Trade Agreement of 1989 as a source of exogenous variation in trade barriers, I show that trade liberalization leads to a significant increase in M&A activity. I also provide evidence that resources are transferred from less to more productive firms in the process and that the magnitude of the overall transfer is quantitatively important. Taken together, these results suggest that M&As are an important alternative to the previously studied adjustment channels of firm and establishment closure and contraction. This has strong implications for the design of competition policy in the wake of trade liberalizations since M&As may offer a more efficient way of transferring resources than contraction and closure of low productivity firms combined with internal growth of more efficient firms.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 619.

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Date of creation: 09 Oct 2006
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Handle: RePEc:esx:essedp:619

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  7. Wooldridge, J.M., 1990. "Distribution-Free Estimation Of Some Nonlinear Panel Data Models," Working papers 564, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
(explanations, 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.)

  1. Tekin-Koru, Ayca, 2009. "Tariff-Jumping and the Form of FDI: Firm Level Evidence," MPRA Paper 12989, University Library of Munich, Germany. [Downloadable!]
  2. Paola Conconi & Patrick Legros & Andrew F. Newman, 2008. "Trade Liberalization and Organizational Change," ECARES Working Papers 2008_025, Université Libre de Bruxelles, Ecares. [Downloadable!]
    Other versions:
  3. Paola Conconi & Patrick Legros & Andrew F. Newman, 2008. "Trade Liberalization and Organizational Choice," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-172, Boston University - Department of Economics. [Downloadable!]
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