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Cross-Border Mergers and Greenfield Foreign Direct Investment

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  • Stepanok, Ignat

    () (Kiel Institute for the World Economy)

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. 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.

Suggested Citation

  • Stepanok, Ignat, 2010. "Cross-Border Mergers and Greenfield Foreign Direct Investment," SSE/EFI Working Paper Series in Economics and Finance 0731, Stockholm School of Economics, revised 16 Oct 2013.
  • Handle: RePEc:hhs:hastef:0731
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    Cited by:

    1. repec:tep:teppwp:wp1206 is not listed on IDEAS
    2. Ayesha Ashraf & Dierk Herzer & Peter Nunnenkamp, 2016. "The Effects of Greenfield FDI and Cross-border M&As on Total Factor Productivity," The World Economy, Wiley Blackwell, vol. 39(11), pages 1728-1755, November.
    3. Tarun Kabiraj & Uday Bhanu Sinha, 2015. "Foreign Entry, Acquisition Target and Host Country Welfare," Manchester School, University of Manchester, vol. 83(6), pages 725-748, December.
    4. Reddy, Kotapati Srinivasa, 2015. "Macroeconomic Change, and Cross-border Mergers and Acquisitions: The Indian Experience, 1991-2010," MPRA Paper 63562, University Library of Munich, Germany, revised 2015.
    5. Kai Zhao, 2011. "Entry mode choice and target firm selection: private and collective incentive analysis," Working Papers halshs-00856139, HAL.
    6. Kai Zhao, 2012. "Entry mode choice and target firm selection: private and collective incentive analysis," TEPP Working Paper 2012-06, TEPP.
    7. repec:spr:epolit:v:35:y:2018:i:1:d:10.1007_s40888-017-0085-z is not listed on IDEAS

    More about this item

    Keywords

    Foreign direct investment; Mergers; Greenfield; Firm heterogeneity;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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