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Core competencies, matching and the structure of foreign direct investment

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  • Federico J. Díez
  • Alan C. Spearot

Abstract

We develop a matching model of foreign direct investment to study how multinational firms choose between greenfield investment, acquisitions and joint ownership. Firms must invest in a continuum of tasks to bring a product to market. Each firm possesses a core competency in the task space, but the firms are otherwise identical. For acquisitions and joint ownership, a multinational enterprise (MNE) must match with a local partner that may provide complementary expertise within the task space. However, under joint ownership, investment in tasks is shared by multiple owners and, hence, is subject to a holdup problem that varies with contract intensity. In equilibrium, ex ante identical multinationals enter the local matching market, and, ex post, three different types of heterogeneous firms arise. Specifically, the worst matches are forgone and the MNEs invest greenfield; the middle matches operate under joint ownership; and the best matches integrate via full acquisition. We link the firm‐level model to cross‐country and industry predictions and find that a greater share of full acquisitions occur between more proximate markets, in hosts with greater revenue potential and within contract‐intensive industries. Using data on partial and full acquisitions across industries and countries, we find robust support for these predictions. Compétences de base, arrimage, et structure de l'investissement direct à l'étranger. On développe un modèle d'arrimage de l'investissement direct à l'étranger pour étudier le comportement des plurinationales dans le choix de diverses formes d'activités—construction de nouvelles installations, acquisitions, ou propriété conjointe. Les firmes doivent investir dans un continuum de tâches pour apporter un produit au marché. Chaque firme a une compétence de base dans cet espace de tâches, mais, pour ce qui est du reste, elles sont identiques. Dans le cas d'acquisitions et de propriété conjointe, les firmes plurinationales doivent s'arrimer avec un partenaire local qui puisse fournir l'expertise complémentaire dans l'espace des tâches. Cependant, dans le cas de propriété conjointe, l'investissement dans les tâches est partagé entre plusieurs propriétaires, et donc susceptible de se prêter à un problème de braquage qui varie selon les détails du contrat. En équilibre, des plurinationales identiques ex ante entrent dans le marché de l'arrimage, et ex post, trois types différents de firmes hétérogènes émergent. Spécifiquement, les pires arrimages sont évités, et la plurinationale construit des installations nouvelles; des arrimages moyens engendrent la propriété conjointe; et les meilleurs arrimages mènent à des acquisitions. En reliant le modèle au niveau de la firme aux prédictions entre pays et au niveau de l'industrie, on découvre qu'une plus grande portion des pleines acquisitions sont réalisées entre marchés proches, dans les pays hôtes qui promettent le plus grand potentiel de revenus, et à l'intérieur d'industries où les contrats sont les plus intensifs. À l'aide de données sur les acquisitions partielles et complètes, à travers les industries et les pays, il y a un support robuste pour ces prédictions.

Suggested Citation

  • Federico J. Díez & Alan C. Spearot, 2014. "Core competencies, matching and the structure of foreign direct investment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(3), pages 813-855, August.
  • Handle: RePEc:wly:canjec:v:47:y:2014:i:3:p:813-855
    DOI: 10.1111/caje.12097
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    2. Fredrik Heyman & Pehr‐Johan Norbäck & Rickard Hammarberg, 2019. "Foreign Direct Investment, Source Country Heterogeneity and Management Practices," Economica, London School of Economics and Political Science, vol. 86(342), pages 362-395, April.

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