Cross‐border Mergers and Greenfield Foreign Direct Investment |
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| Authors: | Ignat Stepanok |
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| Affiliation: | Kiel Institute for the World Economy, Kiellinie 66, Kiel, GermanyI would like to thank Paul Segerstrom for his advice and thorough discussion of the paper. I am also grateful to David Domeij, Frédéric Robert‐Nicoud, Yoichi Sugita and two anonymous referees for useful comments and suggestions as well as participants at the European Trade Study Group meeting in Copenhagen, the Spring Meeting of Young Economists in Mannheim and seminar participants at the Kiel Institute for the World Economy. Financial support from the Wallander Foundation and the Fritz Thyssen Foundation is gratefully acknowledged. |
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| Abstract: | This paper presents a model of international trade and foreign direct investment (FDI), where FDI is comprised of greenfield FDI and mergers and acquisitions (M&A). In a monopolistically competitive environment merging firms do not reduce competition. Mergers are motivated by efficiency gains and transfer of technology. Following empirical evidence, greenfield investors are modeled as more productive than 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. Trade liberalization makes more firms choose greenfield FDI over M&A and leads to lower productivity and welfare. |
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