TY  - JOUR
AU  - Nocke,Volker
AU  - Yeaple,Stephen
TI  - An Assignment Theory of Foreign Direct Investment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11003
PY  - 2004
Y2  - December 2004
UR  - http://www.nber.org/papers/w11003
L1  - http://www.nber.org/papers/w11003.pdf
N1  - Author contact info:
Volker Nocke
Department of Economics
University of Mannheim
68131 Mannheim
Germany
Tel: +49-0621-1811836
E-Mail: nocke@uni-mannheim.de

Stephen Yeaple
Department of Economics
The Pennsylvania State University
520 Kern Building
University Park, PA 16802-3306
Tel: 8148655452
E-Mail: sry3@psu.edu
AB  - 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.
ER  -