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Investment liberalization -- Why a restrictive cross-border merger policy can be counterproductive

  • Norback, Pehr-Johan
  • Persson, Lars

Investment liberalizing countries are often concerned that cross-border mergers & acquisitions, in contrast to greenfield investments, might have an adverse effect on domestic firms and consumers. However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an asset complementarity effect, which imply that the acquisition price is substantially higher than the domestic seller's profits. Moreover, we show that for the acquisition to take place, the MNE must be sufficiently efficient when using the domestic assets, otherwise rivals will expand their business, thereby making the acquisition unprofitable. Consequently, restricting cross-border M&As may also hurt consumers.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 72 (2007)
Issue (Month): 2 (July)
Pages: 366-380

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Handle: RePEc:eee:inecon:v:72:y:2007:i:2:p:366-380
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001. "Mode of Foreign Entry, Technology Transfer, and FDI Policy," CEPR Discussion Papers 2870, C.E.P.R. Discussion Papers.
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  3. Neary, J. Peter, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," Center for European, Governance and Economic Development Research Discussion Papers 34, University of Goettingen, Department of Economics.
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  13. Norbäck, Pehr-Johan & Persson, Lars, 2001. "Investment Liberalization - Who Benefits from Cross-Border Mergers & Acquisitions?," Working Paper Series 569, Research Institute of Industrial Economics.
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  17. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP -823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Norbäck, Pehr-Johan & Persson, Lars, 2002. "Investment Liberalization - Who Benefits from Cross Border Mergers," CEPR Discussion Papers 3166, C.E.P.R. Discussion Papers.
  19. Persson, Lars & Horn, Henrik, 1998. "Endogenous Mergers in Concentrated Markets," Working Paper Series 513, Research Institute of Industrial Economics.
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