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

Fingerprint

Greenfield investment
Foreign market entry
Spillover
Leakage
Multinational firms
Costs
Foreign firms
Host country
Mergers and acquisitions
Developing countries
Firm entry
Antitrust policy
Entry mode choice
Social welfare

Keywords

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

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

R&D Spillovers and Foreign Market Entry : Acquisition versus Greenfield Investment. / Yokota, Kazuhiko; Chen, Kung Ming.

In: International Economic Journal, Vol. 26, No. 2, 06.2012, p. 265-280.

Research output: Contribution to journalArticle

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