Publication

This paper presents a model of international trade and foreign direct investment (FDI), where FDI is comprised of greenfield FDI and mergers and acquisitions (M&A). It is argued that working in a monopolistically competitive environment, merging firms do not reduce competition. Following empirical evidence, the author models greenfield investors as the more productive group relative to M&A firms, which are in turn more productive than exporters. The model has two symmetric countries and generates two-way flows of both M&A and greenfield FDI. Greater proximity to a market makes more firms choose greenfield FDI over M&A when investing there.