Trade Liberalization and Industrial Restructuring: The Role of Cross‐Border Mergers and Acquisitions

Olivier Bertrand and Habib Zitouna

Journal of Economics & Management Strategy, 2006, vol. 15, issue 2, 479-515

Abstract: This paper analyzes industry adjustments to trade liberalization. It introduces cross‐border mergers and acquisitions (M&A) as an alternative mode of industrial restructuring to firms' exit. In a two‐country Cournot model, we examine the responses of domestic and foreign firms endowed with different technologies for different stages of trade openness. It is found that the less efficient firm loses market shares in its home market at the beginning of trade liberalization. Only for a more advanced level of liberalization, does it take advantage of a larger access to foreign demand. Trade liberalization may therefore harm its profits too strongly, forcing it to leave the market. However, although its incentives decrease with trade liberalization, the high‐technology firm may be willing to take it over for low organizational and technological costs of firms' integration. In addition, it may buy it out even if the less efficient firm manages to stay. Then, trade liberalization affects M&A incentives depending on the technological gap. For low and high (medium) gap, there is an inverted U‐ (W‐) shaped relation between trade costs and incentives to merge. Moreover, although technology transfer is assumed to be complete, M&A may lead to a reduction in consumers' welfare. Firms may capture some pro‐competitive gains from economic openness. Lastly, an empirical analysis based on a data set of OECD members' multinationals gives some support to these theoretical predictions.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

Downloads: (external link)
https://doi.org/10.1111/j.1530-9134.2006.00108.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:15:y:2006:i:2:p:479-515

Ordering information: This journal article can be ordered from
http://www.blackwell ... ref=1058-6407&site=1

Access Statistics for this article

More articles in Journal of Economics & Management Strategy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().