Competition or Comparative Advantage: What Drives Cross Border Mergers and Acquisitions?

The theory of comparative advantage explains the upsurge of cross border mergers and acquisitions (CBMAs) in the era of reform led trade liberalization. This paper tests the theory of comparative advantage for CBMAs by firms belonging to a developing country, viz. India. Using count data the paper also shows that CBMAs have occurred in country and sector specific waves. This implies in developing countries, it is competition rather than comparative advantage which drives CBMAs. However, the paper finds that occurrence of the country specific wave and sector specific wave are negatively affected by favourable outward FDI policy. © 2016, The Indian Econometric Society.