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Mergers and the Composition of International Commerce

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Author Info
Volker Nocke
Stephen Yeaple

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Abstract

In this paper, we develop a novel theory of cross-border mergers and acquisitions. Firms can choose between different modes of foreign market access: exporting, greenfield FDI, and cross-border M&A. Our theory is based on three key ideas. First is heterogeneity in firms' capabilities. Second, these capabilities differ in their degree of international mobility. Third, capabilities are traded in a merger market. We address two questions: (1) what are the characteristics of firms that choose the various modes of foreign market access, and (2) how does the composition of international commerce vary across industries and countries? We show that the degree to which firms differ in their mobile and non-mobile capabilities plays a crucial role for the composition of international commerce: depending on whether firms differ in their mobile or immobile capabilities, cross-border mergers may involve the most or the least efficient active firms. A similar dichotomy obtains when analyzing the effects of country and industry characteristics on the distribution of firms' efficiencies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10405.

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Date of creation: Apr 2004
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Handle: RePEc:nbr:nberwo:10405

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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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.:
  1. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  2. Boyan Jovanovic & Peter L. Rousseau, 2002. "The Q-Theory of Mergers," American Economic Review, American Economic Association, vol. 92(2), pages 198-204, May. [Downloadable!]
    Other versions:
  3. Volker Nocke, 2000. "Monopolisation and Industry Structure," Econometric Society World Congress 2000 Contributed Papers 0429, Econometric Society. [Downloadable!]
  4. Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  5. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  6. repec:rus:hseeco:122439 is not listed on IDEAS
  7. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May. [Downloadable!] (restricted)
  8. Maurin, Eric & Thesmar, David & Thoenig, Mathias, 2002. "Globalization and the demand for skill: An Export Based Channel," CEPR Discussion Papers 3406, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December. [Downloadable!] (restricted)
  10. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April. [Downloadable!] (restricted)
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  12. Stephen Ross Yeaple, 2003. "The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 726-734, 07. [Downloadable!] (restricted)
  13. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn. [Downloadable!] (restricted)
  14. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November. [Downloadable!] (restricted)
  15. Kamien, Morton I & Zang, Israel, 1990. "The Limits of Monopolization through Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 465-99, May. [Downloadable!] (restricted)
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  16. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March. [Downloadable!]
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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. Neary, J Peter, 2006. "Trade Costs and Foreign Direct Investment," CEPR Discussion Papers 5933, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Raff, Horst & Ryan, Michael & Stähler, Frank, 2005. "Asset Ownership and Foreign-Market Entry," Economics Working Papers 2006,01, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
    Other versions:
  3. Volker Nocke & Stephen Yeaple, 2004. "An Assignment Theory of Foreign Direct Investment," NBER Working Papers 11003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Rachel Griffith & Stephen Redding & Helen Simpson, 2004. "Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab," CEP Discussion Papers dp0649, Centre for Economic Performance, LSE. [Downloadable!]
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  5. J. Peter Neary, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," cege – Center for European, Governance and Economic Development Research Discussion Papers 34, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
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  6. Stefanie A. Haller, 2005. "The Impact of Multinational Entry on Domestic Market Structure and R&D," Economics Working Papers ECO2005/16, European University Institute. [Downloadable!]
  7. Malcolm Baker & C. Fritz Foley & Jeffrey Wurgler, 2004. "The Stock Market and Investment: Evidence from FDI Flows," NBER Working Papers 10559, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Seiichi Katayama & Sajal Lahiri & Eiichi Tomiura, 2005. "Cost Heterogeneity and the Destination of Foreign Direct Investment," Discussion Paper Series 166, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  9. Holger Breinlich, 2006. "Trade Liberalization and Industrial Restructuring through Mergers and Acquisitions," CEP Discussion Papers dp0717, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
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