On the Effects of Economic Integration on Greenfield Investments and Cross-border Mergers and Acquisitions Location Pattern

Olivier Bertrand ()
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Olivier Bertrand: TEAM. University of Paris 1 Pantheon Sorbonne and CNRS, Postal: TEAM, University of Paris I Sorbonne and CNRS, Maison des Sciences Economiques,, 106-112, Bd de l’Hôpital-75647 Paris Cedex 13.

Journal of Economic Integration, 2005, vol. 20, 26-51

Abstract:

This paper investigates the linkages between economic integration and horizontal Foreign Direct Investment (FDI) location. In a three-country partial equilibrium model with differentiated Cournot and Bertrand competition, we incorporate the two main FDI modes: Greenfield Investment (G.I.) and crossborder Merger and Acquisition (M&A). We also allow regionally-based firms to invest outside the regional area. Economic integration characterized by internal and external transaction costs may affect entry modes (G.I. vs. M&A) and its location (intra - extra regional flows). Our findings suggest the existence of complex linkages between economic integration and FDI location pattern depending simultaneously on set-up fixed costs, the competitive mode of market interaction and the product differentiation. However, the role of cross-border M&A as well as the importance of FDI outflows from the regional area is highlighted.

Keywords: FDI; integration; location; entry mode; mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: F15 F23 G34 L10 L13 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0304

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