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Cross-Border Mergers and Greenfield Foreign Direct Investment

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  • Ignat Stepanok

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, which are in turn more productive than exporters. 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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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1805.

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Length: 27 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:kie:kieliw:1805

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Keywords: Foreign direct investment; mergers; acquisitions; greenfield; firm heterogeneity;

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

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