Most FDI takes place between the developed countries, which suggests that the market-seeking motive is important for understanding FDI. However, given the stylized fact that trade barriers (e.g. transportation costs and financial barriers) have declined over the past 20 years, models that aim to explain market-seeking FDI tend to predict a decline in FDI. Neary (2008) offers two explanations for this puzzle: (1) the export platform motive (where firms gain access to an integrated market by investing in one of the “integrated” countries); (2) Neary’s (2007) GOLE model, which explains cross-border mergers and acquisitions (this model is of interest since most FDI comes in the form of M&As). By using a gravity framework, where we also deal with the “zero gravity problem”, we confirm the predictions of the GOLE model.

Additional Metadata
Keywords cross border M&As, economic integration, financial opennness
JEL F10, Trade: General (jel), F12, Models of Trade with Imperfect Competition and Scale Economies (jel), F15, Economic Integration (jel), F36, Financial Aspects of Economic Integration (jel), F37, International Finance Forecasting and Simulation (jel), F41, Open Economy Macroeconomics (jel), G34, Mergers; Acquisitions; Restructuring; Corporate Governance (jel), L13, Oligopoly and Other Imperfect Markets (jel)
Publisher Institute for Housing and Urban Development Studies (IHS)
Persistent URL
Brakman, S, Garita, G.A, Garretsen, J.H, & van Marrewijk, J.G.M. (2008). Unlocking the Value of Cross-Border Mergers and Acquisitions (No. IHS WP 17). IHS Working Papers. Institute for Housing and Urban Development Studies (IHS). Retrieved from