Working Paper

Cross-Border Mergers and Greenfield Foreign Direct Investment

Author

  • Ignat Stepanok
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). 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, 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. Greater proximity to a market makes more firms choose greenfield FDI over M&A when investing there. Empirical evidence supports this result.

Info

JEL Classification
F12, F23

Key Words

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