DP6397 Cross-Border Mergers & Acquisitions and the Role of Trade Costs

Author(s): Holger Görg , Alexander Hijzen , Miriam Manchin

Publication Date: July 2007

Keyword(s): FDI , gravity , mergers and acquisitions , trade costs

JEL(s): F02 , F15 , F21 , F23

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP6397.asp.asp

Cross-border mergers and acquisitions (M&As) have increased dramatically over the last two decades. This paper analyses the role of trade costs in explaining the increase in the number of cross-border mergers and acquisitions. In particular, we distinguish horizontal and non-horizontal M&As and investigate whether trade costs affect these two types of mergers differently. We analyse this question using industry data for 23 OECD countries for the period 1990-2001. Our findings suggest that while in the aggregate trade costs affect cross-border merger activity negatively its impact differs importantly across horizontal and non-horizontal mergers. The impact of trade costs is less negative for horizontal mergers, which is consistent with the tariff-jumping argument.