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Journal of Economic Integration 2005 March;20(1) :26-51.
On the Effects of Economic Integration on Greenfield Investments and Cross-border Mergers and Acquisitions Location Pattern

Olivier Bertrand 

TEAM. University of Paris 1 Pantheon Sorbonne and CNRS
Copyright ©2005 Journal of Economic Integration
This paper investigates the linkages between economic integration and horizontal Foreign Direct Investment (FDI) location. In a three-country partial equilibrium model with differentiated Cournot and Bertrand competition, we incorporate the two main FDI modes: Greenfield Investment (G.I.) and cross-border Merger and Acquisition (M&A). We also allow regionally-based firms to invest outside the regional area. Economic integration characterized by internal and external transaction costs may affect entry modes (G.I. vs. M&A) and its location (intra - extra regional flows). Our findings suggest the existence of complex linkages between economic integration and FDI location pattern depending simultaneously on set-up fixed costs, the competitive mode of market interaction and the product differentiation. However, the role of cross-border M&A as well as the importance of FDI outflows from the regional area is highlighted.

JEL Classification: F15, F23, L10, L13, G34

Keywords: FDI | integration | location | entry mode | mergers and acquisitions
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