Greenfield, merger and acquisition, or export? Regulating the entry of multinational enterprises to a host-country market

How should a welfare-maximizing host government regulate the entry of multinational enterprises (MNEs) that compete with local firms for the host-country market? We demonstrate that the optimal entry regulation depends on the size of the host market: The host government chooses to grant cross-border mergers and acquisitions (M&As) when the host market is sufficiently small; otherwise, it chooses direct export. Greenfield investment, on the other hand, will not be granted. Moreover, we show that for the case of M&A, the MNEs would acquire the most efficient local firm.