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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.

Suggested Citation

  • Volker Nocke & Stephen Yeaple, 2004. "Mergers and the Composition of International Commerce," NBER Working Papers 10405, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10405
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    References listed on IDEAS

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    Cited by:

    1. Breinlich, Holger, 2008. "Trade liberalization and industrial restructuring through mergers and acquisitions," Journal of International Economics, Elsevier, vol. 76(2), pages 254-266, December.
    2. Neary, J. Peter, 2009. "Trade costs and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 207-218, March.
    3. 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.
    4. Volker Nocke & Stephen Yeaple, 2008. "An Assignment Theory of Foreign Direct Investment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(2), pages 529-557.
    5. Lee, Donghyun, 2017. "Cross-border mergers and acquisitions with heterogeneous firms: Technology vs. market motives," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 20-37.
    6. Rachel Griffith & Stephen Redding & Helen Simpson, 2004. "Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 20(3), pages 440-456, Autumn.
    7. J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1229-1257.
    8. Stefanie A. Haller, 2005. "The Impact of Multinational Entry on Domestic Market Structure and R&D," Economics Working Papers ECO2005/16, European University Institute.
    9. 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.
    10. 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.
    11. repec:got:cegedp:34 is not listed on IDEAS

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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