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

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  • Kazuhiko Yokota
  • Kung-Ming Chen

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.

Suggested Citation

  • Kazuhiko Yokota & Kung-Ming Chen, 2012. "R&D Spillovers and Foreign Market Entry: Acquisition versus Greenfield Investment," International Economic Journal, Taylor & Francis Journals, vol. 26(2), pages 265-280, December.
    • Handle: RePEc:taf:intecj:v:26:y:2012:i:2:p:265-280
    DOI: 10.1080/10168737.2012.688519
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    References listed on IDEAS

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    1. Sanjaya Lall, "undated". "Implications Of Cross-Border Mergers and Acquisitions By TNCs in Developing Countries: A Beginner's Guide," QEH Working Papers qehwps88, Queen Elizabeth House, University of Oxford.
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    Cited by:

    1. Armando J. Garcia Pires, 2015. "Multinationals, R&D and Endogenous Productivity Asymmetries," International Economic Journal, Taylor & Francis Journals, vol. 29(1), pages 95-119, March.
    2. Gawellek, Bastian & Lyu, Jingjing & Süssmuth, Bernd, 2021. "Geo-politics and the impact of China's outward investment on developing countries: evidence from the Great Recession," Emerging Markets Review, Elsevier, vol. 48(C).
    3. Bastian Gawellek & Jingjing Lyu & Bernd Süssmuth, 2016. "Did Chinese Outward Activity Attenuate or Aggravate the Great Recession in Developing Countries?," CESifo Working Paper Series 5735, CESifo.

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