City-specific determinants of cross-border M&As: an inter-urban gravity approach

Banri Ito and Katsunori Shirai
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Katsunori Shirai: Osaka Gakuin University

International Economics and Economic Policy, 2024, vol. 21, issue 1, No 3, 65-88

Abstract: Abstract Cross-border mergers and acquisitions (M&As) have grown rapidly in recent years and are a major part of foreign direct investment (FDI). However, M&A distribution is highly skewed, with most of the activity concentrated in certain countries and even in certain cities. The fact that only a handful of cities account for most M&As raises a research question as to what city attributes attract foreign investment. Unlike many previous studies that have relied on a gravity model approach using the bilateral volume of FDI, this study examines the determinants of cross-border M&As by applying an FDI gravity model to inter-city investment flows. The results based on panel data of M&A flow across 44 major cities in the world from 2010 to 2017, reveal that the gravity model fits well for even the inter-city data, and show that besides the basic attributes used in conventional gravity models, such as market size and distance between origin city and destination city, and urban-specific attributes such as the agglomeration of the world’s top-ranked firms and international accessibility are positively associated with cross-border inward M&As.

Keywords: Gravity model; FDI policy; Inter-city investment; Agglomeration (search for similar items in EconPapers)
JEL-codes: F14 F21 F23 R12 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10368-023-00577-6

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