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Mergers and the Composition of International Commerce

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  • Volker Nocke
  • Stephen Yeaple

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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Bibliographic Info

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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References

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  1. 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, August.
  2. repec:rus:hseeco:122439 is not listed on IDEAS
  3. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3381, C.E.P.R. Discussion Papers.
  4. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2302, C.E.P.R. Discussion Papers.
  5. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4170, C.E.P.R. Discussion Papers.
  6. Boyan Jovanovic & Peter L. Rousseau, 2002. "The Q-Theory of Mergers," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 198-204, May.
  7. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1268-1290, September.
  9. Volker Nocke, 2000. "Monopolisation and Industry Structure," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0429, Econometric Society.
  10. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, American Economic Association, vol. 71(5), pages 845-58, December.
  11. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  12. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
  13. Maurin, Eric & Thesmar, David & Thoenig, Mathias, 2002. "Globalization and the demand for skill: An Export Based Channel," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3406, C.E.P.R. Discussion Papers.
  14. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, Elsevier, vol. 16(3-4), pages 205-226, May.
  15. 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.
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Citations

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Cited by:
  1. Volker Nocke & Stephen Yeaple, 2008. "An Assignment Theory of Foreign Direct Investment," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 529-557.
  2. Holger Breinlich, 2006. "Trade Liberalization and Industrial Restructuring through Mergers and Acquisitions," Economics Discussion Papers, University of Essex, Department of Economics 619, University of Essex, Department of Economics.
  3. Rachel Griffith & Stephen Redding & Helen Simpson, 2004. "Foreign ownership and productivity: new evidence from the service sector and the R&D lab," IFS Working Papers, Institute for Fiscal Studies W04/22, Institute for Fiscal Studies.
  4. Stefanie A. Haller, 2005. "The Impact of Multinational Entry on Domestic Market Structure and R&D," Economics Working Papers, European University Institute ECO2005/16, European University Institute.
  5. 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.
  6. 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.
  7. Neary, J Peter, 2006. "Trade Costs and Foreign Direct Investment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5933, C.E.P.R. Discussion Papers.
  8. Seiichi Katayama & Sajal Lahiri & Eiichi Tomiura, 2005. "Cost Heterogeneity and the Destination of Foreign Direct Investment," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 166, Research Institute for Economics & Business Administration, Kobe University.

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