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Cross-Border Mergers and Greenfield Foreign Direct Investment

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  • Stepanok, Ignat

    ()
    (Kiel Institute for the World Economy)

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. 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.

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File URL: http://swopec.hhs.se/hastef/papers/hastef0731.pdf
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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 0731.

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Length: 43 pages
Date of creation: 22 Nov 2010
Date of revision: 29 Nov 2010
Handle: RePEc:hhs:hastef:0731

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Keywords: Foreign direct investment; Mergers; Greenfield; Firm heterogeneity;

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References

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Cited by:
  1. Kai Zhao, 2011. "Entry mode choice and target firm selection: private and collective incentive analysis," Working Papers halshs-00856139, HAL.
  2. repec:tep:teppwp:wp1206 is not listed on IDEAS

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