Journal
JOURNAL OF INTERNATIONAL ECONOMICS
Volume 74, Issue 1, Pages 2-20Publisher
ELSEVIER
DOI: 10.1016/j.jinteco.2007.04.004
Keywords
foreign direct investment; mergers and acquisitions; gravity; benchmark
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Much foreign direct investment (FDI) takes the form of mergers and acquisitions (M&A). It is commonplace in finance to view acquisitions as manifestations of the market for corporate control. Following on that insight we propose a model of FDI in which headquarters bid to control overseas assets. We derive an equation for bilateral FDI stocks that resembles the recently developed fixed effects approach to modelling bilateral trade flows. We estimate the model and use its parameters to construct benchmarks for evaluating multilateral inward and outward FDI. (C) 2007 Elsevier B.V All rights reserved.
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