Research Achievements

GIARI & Economic Integration and Sustainability

Research:Publications:Working Papers FY2010(english-8,japanese-4)

R&D Spillovers and Foreign Market Entry: Acquisition vs. Greenfield Investment / Kazuhiko Yokota and Kun-Ming Chen


Working Papers

Excellent papers on Asian regional integration, which are prepared mainly by young researchers such as GIARI members, co-researchers, research fellows, and research assistants, will be published as working papers. Contributed papers, written in English or in Japanese, will be reviewed and examined by the editorial committee before publication. GIARI donates published papers to the libraries of Waseda and other related universities, research organizations, etc.

GIARI Working Paper Vol. 2010-E-1

R&D Spillovers and Foreign Market Entry: Acquisition vs. Greenfield Investment /
Kazuhiko Yokota & Kun-Ming Chen [413KB]

April 2010

The authors would like to thank Joshua Little and David Kritzberg for their helpful comments and suggestions for the earlier draft. All errors are ours.

Kazuhiko Yokota
Corresponding author, School of Commerce, Waseda University

Kun-Ming Chen
Department of International Business, National Chengchi University


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. It is also shown that the size of social welfare of the host country depends on the degree of R&D spillovers. These model results produce strong implications for antitrust policy, particularly for developing countries.

Keywords: Foreign direct investment, R&D spillover, Merger and acquisitions, Greenfield investment,
JEL Classification: F21, O32, L10


1. Introduction
2. A Model of R&D Expenditures with Spillovers and Foreign Market Entry
3. Welfare Analysis
4. Conclusion
Appendix A: Extension to Include the Export Option
Appendix B: Proof of Proposition 1
Appendix C: Proof of Proposition 2
Appendix D: Proof of Proposition 3

Figure 1. Equilibrium post-entry output levels
Figure 2. Optimal post-entry R&D expenditures
Figure 3. Foreign firm's post-entry profit
Figure 4. Local firms' profits
Figure 5. Equilibrium entry modes
Figure 6. Consumer surplus
Figure 7. Total profits
Figure 8. Welfare of the Host Country