Cross-border acquisitions from developing countries under decreasing returns to scale

Abstract

We assume that a firm from a developing country wants to acquire a firm from a developed country with better technology. The acquirer, which may be a private firm or a state-owned firm, seeks to improve its efficiency in production. We assume that at most there is one acquisition, and that it needs to be authorized by both the government of the developing country and that of the developed country. Firms face decreasing returns to scale. We find that if the level of inefficiency of the acquirer is very high, the government of the developed country forbids acquisitions. The private firm from the developing country is the acquirer in two cases: if the level of inefficiency of the firms from that country is low and if it is high. If the level of inefficiency is intermediate, the acquirer is the state-owned firm.

Intellectual property rights and North-South trade: Exports vs. foreign direct investment

“…First, they assume that when the Northern firm produces in the South it can prevent imitation by licensing its technology, by choosing the R&D level or by refusing to enter into a joint venture with local partners. However, we assume that when the Northern firm produces in the South it cannot prevent imitation in 7 It is well established in the literature on FDI that labor market characteristics and institutions in the host country are major determinants for multinationals' choice of location when product piracy in the host country is not considered (Mucchielli and Saucier, 1997;Leahy and Montagna, 2000;Lommerud et al, 2003;Dong and Bárcena-Ruiz, 2021). This also applies to the decision of a Northern firm on whether or not to engage in FDI when there is a threat of product piracy in the South.…”