Cross-border mergers and Greenfield foreign direct investment

No 1805, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

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, which are in turn more productive than exporters. 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.

Keywords: foreign direct investment; mergers; acquisitions; greenfield; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 2012
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Related works:
Journal Article: Cross-border Mergers and Greenfield Foreign Direct Investment (2015)
Working Paper: Cross-Border Mergers and Greenfield Foreign Direct Investment (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1805

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