Journal
JOURNAL OF INTERNATIONAL ECONOMICS
Volume 72, Issue 2, Pages 336-365Publisher
ELSEVIER
DOI: 10.1016/j.jinteco.2006.09.003
Keywords
foreign direct investment; mergers; greenfield; firm heterogeneity; capabilities
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We develop a general equilibrium model with heterogeneous firms to address two sets of questions: (1) what are the characteristics of firms that choose the various modes of foreign market access (exporting, greenfield FDI, and cross-border M&A), and (2) how does the international organization of production vary across industries and country-pairs? We show that the answers to these questions depend on the nature of firm heterogeneity. Depending on whether firms differ in their mobile or immobile capabilities, crossborder mergers involve the most or the least efficient active firms. The comparative statics on industry and country characteristics display a similar dichotomy. (c) 2006 Elsevier B.V All rights reserved.
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