Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity |
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Authors: | Volker Nocke Stephen Yeaple |
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Institution: | a University of Oxford, University of Pennsylvania, and CEPR, United Kingdom b University of Pennsylvania and NBER, United States |
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Abstract: | We develop a general equilibrium model with heterogeneous firms to address two sets of questions: (1) what are the characteristics of firms that choose the various modes of foreign market access (exporting, greenfield FDI, and cross-border M&A), and (2) how does the international organization of production vary across industries and country-pairs? We show that the answers to these questions depend on the nature of firm heterogeneity. Depending on whether firms differ in their mobile or immobile capabilities, cross-border mergers involve the most or the least efficient active firms. The comparative statics on industry and country characteristics display a similar dichotomy. |
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Keywords: | Foreign direct investment Mergers Greenfield Firm heterogeneity Capabilities |
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