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Firm‐productivity and cross border merger

Arijit Mukherjee and Umut Erksan Senalp

Review of International Economics, 2021, vol. 29, issue 4, 838-859

Abstract: We examine whether higher productivity of a foreign firm increases the incentive for a cross border merger, which is a dominant form of foreign direct investment in recent decades. In line with the empirical evidence, we show that the relationship between productivity of a foreign firm and cross border merger is mixed. We show that the market concentration effect plays an important role in determining the relationship and provides a rationale for a generally ignored empirical evidence showing a negative relationship between firm‐productivity and cross border merger. Our results hold under both Cournot and Bertrand competition.

Date: 2021
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