Cross-border Mergers and Greenfield Foreign Direct Investment

Ignat Stepanok

Review of International Economics, 2015, vol. 23, issue 1, 111-136

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.

Date: 2015
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Related works:
Working Paper: Cross-Border Mergers and Greenfield Foreign Direct Investment (2013)
Working Paper: Cross-border mergers and Greenfield foreign direct investment (2012)
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