R&D Spillovers and Foreign Market Entry: Acquisition versus Greenfield Investment

Kazuhiko Yokota, Kung Ming Chen

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper presents a three-stage game to model the entry behavior of a multinational firm in the presence of R&D spillovers. The multinational firm's entry mode choice - that is, to invest to set up a new plant or merge with a local firm - is a function of the magnitude of spillovers, as well as the relative cost of greenfield investment, and mergers and acquisitions (M&A). Our model shows that if there exist relatively high R&D leakages and relatively small difference in cost between M&A and greenfield investment, an R&D-intensive foreign firm tends to choose greenfield investment rather than M&A, while if there exist relatively low R&D leakages, the foreign firm is more likely to choose M&A rather than greenfield investment. It is also shown that the size of social welfare of the host country depends on the degree of R&D spillovers. These results produce strong implications for antitrust policy for particularly developing countries.

Original languageEnglish
Pages (from-to)265-280
Number of pages16
JournalInternational Economic Journal
Volume26
Issue number2
DOIs
Publication statusPublished - 2012 Jun 1

Keywords

  • Foreign direct investment
  • R&D spillover
  • greenfield investment
  • merger and acquisitions

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Fingerprint Dive into the research topics of 'R&D Spillovers and Foreign Market Entry: Acquisition versus Greenfield Investment'. Together they form a unique fingerprint.

  • Cite this