From China with Love: The Role of FDI from Third Countries on EU Competition and R&D Activities

This report presents empirical analysis on the linkage between mergers and acquisition FDI and acquirer innovation efforts. The data indicates that acquisitions tend to result in a spike in research in the two following years. This impact, however, is contingent on industrial linkages between target and acquirer. In particular, nonmanufacturing targets appear to have the largest impact. Further investigation using input-output linkages finds that acquirer R&D increases more when the target is a primary source of inputs for the acquirer. These effects, however, are smaller for Chinese acquirers, suggesting that concerns over whether acquisition of foreign technology is spurring faster Chinese technological growth may be misguided. Finally, these effects are smaller in more concentrated industries, suggesting the need to consider industry concentration when projecting the R&D implications of cross-border mergers.