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Greenfield, merger and acquisition, or export? Regulating the entry of multinational enterprises to a host-country market

Dapeng Cai () and Yukio Karasawa-Ohtashiro ()

International Review of Economics & Finance, 2018, vol. 56, issue C, 397-407

Abstract: How should a welfare-maximizing host government regulate the entry of multinational enterprises (MNEs) that compete with local firms for the host-country market? We demonstrate that the optimal entry regulation depends on the size of the host market: The host government chooses to grant cross-border mergers and acquisitions (M&As) when the host market is sufficiently small; otherwise, it chooses direct export. Greenfield investment, on the other hand, will not be granted. Moreover, we show that for the case of M&A, the MNEs would acquire the most efficient local firm.

Keywords: Foreign direct investment (FDI); Export; Merger and acquisitions (M&As); Greenfield investment; Multinational enterprises (MNEs) (search for similar items in EconPapers)
JEL-codes: F12 L22 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.iref.2017.11.008

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