Working Paper: CEPR ID: DP2302
Authors: Henrik Horn; Lars Persson
Abstract: Mergers and acquisitions (M&A) is the dominant form of Foreign Direct Investment (FDI), but has received only scarce attention in the theory literature on trade and investment. This paper highlights how the international pattern of ownership of productive assets may depend on features of trade and production costs. It suggests how high trade costs may be conducive to national ownership of assets, while international firms may arise at lower trade costs, contrary to what the 'tariff jumping' argument would suggest. It also shows how private and social incentives for M&A may differ for weak merger synergies, but converge when synergies are stronger.
Keywords: international mergers; endogenous market structure; tariff jumping; FDI
JEL Codes: F23; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High trade costs (F12) | Increased national ownership of assets (H13) |
| Lower trade costs (F19) | Emergence of international firms through M&A (F23) |
| High trade costs (F12) | Domestic mergers (G34) |
| Strength of merger synergies (G34) | Incentives for M&A (G34) |