Title: An assignment theory of foreign direct investment
Description: "We develop an assignment theory to analyze the volume and composition of foreign direct investment (FDI).  Firms conduct FDI by either engaging in greenfield investment or in cross-border acquisitions.  Cross-border acquisitions involve firms trading heterogeneous corporate assets to exploit complementarities, while greenfield FDI involves building a new plant in the foreign market.  In equilibrium, greenfield FDI and cross-border acquisitions co-exist, but the composition of FDI between these modes varies with firm and country characteristics.  Firms engaging in greenfield investment are systematically more efficient than those engaging in cross-border acquisitions.  Furthermore, most FDI takes the form of cross-border acquisitions when factor price differences between countries are small, while greenfield investment plays a more important role for FDI from high-wage into low-wage countries.  These results capture important features of the data"--National Bureau of Economic Research web site.
Subjects: Foreign Investments