Traditionally, the modeling of M&As provides only a partial understanding of crossborder
M&As, which are most likely related to economy-wide differences between
countries. This suggests that international trade theory is perhaps better suited to
analyze cross-border M&As than IO models. Neary (2003, 2004a) combines generalequilibrium
trade theory with imperfect markets and strategic behavior of firms.
Although this work is mainly theoretical, it leads to two testable hypotheses. First,
acquiring firms tend to be efficient and therefore operate in sectors that have a
revealed comparative advantage as measured by the Balassa index. Second, M&As