Investment Liberalization – Why a Restrictive Cross-Border Merger Policy can be Counterproductive

Reprint No. 2007:11

Author(s): Pehr-Johan Norbäck and Lars PerssonYear: 2007 Title: Journal of International Economics Volume (No.): 72 (2) Pages: 366–380

Investment liberalizing countries are often concerned that cross-border mergers and acquisitions, in contrast to greenfield investments, might have an adverse effect on domestic firms and consumers. However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an asset complementarity effect, which imply that the acquisition price is substantially higher than the domestic seller's profits. Moreover, we show that for the acquisition to take place, the MNE must be sufficiently efficient when using the domestic assets, otherwise rivals will expand their business, thereby making the acquisition unprofitable. Consequently, restricting cross-border M&As may also hurt consumers.

Norbäck, Pehr-Johan, and Lars Persson (2007), "Investment Liberalization – Why a Restrictive Cross-Border Merger Policy can be Counterproductive". Journal of International Economics 72(2), 366–380.

Pehr-Johan Norbäck


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Lars Persson


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