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Title:Cross-border mergers and greenfield foreign direct investment PDF Logo
Authors:Stepanok, Ignat
Issue Date:2010
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 731
Abstract:I present a model of international trade and foreign direct investment (FDI), where FDI is comprised of greenfield FDI and mergers and acquisitions (M&A). Working in a monopolistically competitive environment, merging firms do not reduce competition. Mergers are motivated by efficiency gains and transfer of technology and expertise. Following empirical evidence, I model greenfield investors as the more productive group relative to M&A firms. The model has two symmetric countries and generates two-way flows of both M&A and greenfield FDI. Greater proximity to a market makes more firms choose greenfield FDI over M&A when investing there. Empirical evidence supports this result.
Subjects:Foreign direct investment
Mergers
Greenfield
Firm heterogeneity
JEL:F12
F23
O41
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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