Journal Article

Cross-border Mergers and Greenfield Foreign Direct Investment


  • Stepanok
  • I.
Publication Date

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). In a monopolistically competitive environment merging firms do not reduce competition. Mergers are motivated by efficiency gains and transfer of technology. Following empirical evidence, I model greenfield investors 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.


JEL Classification
F12, F23

Key Words

  • ausländische Direktinvestitionen
  • firm heterogeneity
  • foreign direct investment
  • greenfield
  • Mergers