SSE/EFI Working Paper Series in Economics and Finance
Cross-Border Mergers and Greenfield Foreign Direct Investment
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.
Keywords: Foreign direct investment; Mergers; Greenfield; Firm heterogeneity; (follow links to similar papers)
JEL-Codes: F12; F23; O41; (follow links to similar papers)
43 pages, November 22, 2010, Revised October 16, 2013
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