Mergers and the Composition of International Commerce

41 Pages Posted: 16 Apr 2004

See all articles by Volker Nocke

Volker Nocke

University of Mannheim

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

Date Written: April 2004

Abstract

In this paper, we develop a novel theory of cross-border mergers and acquisitions. Firms can choose between different modes of foreign market access: exporting, greenfield FDI, and cross-border M&A. Our theory is based on three key ideas. First is heterogeneity in firms' capabilities. Second, these capabilities differ in their degree of international mobility. Third, capabilities are traded in a merger market. We address two questions: (1) what are the characteristics of firms that choose the various modes of foreign market access, and (2) how does the composition of international commerce vary across industries and countries? We show that the degree to which firms differ in their mobile and non-mobile capabilities plays a crucial role for the composition of international commerce: depending on whether firms differ in their mobile or immobile capabilities, cross-border mergers may involve the most or the least efficient active firms. A similar dichotomy obtains when analyzing the effects of country and industry characteristics on the distribution of firms' efficiencies.

Suggested Citation

Nocke, Volker and Yeaple, Stephen R., Mergers and the Composition of International Commerce (April 2004). NBER Working Paper No. w10405. Available at SSRN: https://ssrn.com/abstract=528986

Volker Nocke

University of Mannheim ( email )

Stephen R. Yeaple (Contact Author)

Pennsylvania State University - College of the Liberal Arts - Department of Economic ( email )

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National Bureau of Economic Research (NBER)

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