The geography of acquisitions and greenfield investments: firm heterogeneity and regional institutional conditions

Vito Amendolagine, Riccardo Crescenzi and Roberta Rabellotti

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper investigates how institutional conditions at national and regional levels shape the decisions of Multinational Enterprises (MNEs) to invest abroad by means of either acquisitions or greenfield investments. The empirical analysis covers all Foreign Direct Investment (FDI) projects in the European Union by the largest MNEs in the world to study alternative choices by the same firm and account for firm-level characteristics in investment decisions. The empirical results show that - other things being equal - MNEs prefer acquisitions to control activities in regions with stronger investment eco-systems, while they choose greenfield investments in regions with weaker systemic conditions. Moreover, the regional quality of government makes a fundamental difference to the nature of the investment projects attracted by regions: those with high quality of government can attract greenfield investments undertaken by the most productive MNEs. By improving their quality of government, local and regional policy makers can attract higher quality FDI to their constituencies, potentially breaking the vicious circle between low productivity areas and low productivity FDI.

Keywords: greenfield FDI; cross-border acquisitions; firm terogeneity; regions; Europe; insitutions (search for similar items in EconPapers)
JEL-codes: F23 R12 R58 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2022-07
New Economics Papers: this item is included in nep-fdg, nep-geo, nep-int, nep-ppm, nep-sbm and nep-ure
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http://eprints.lse.ac.uk/115597/ Open access version. (application/pdf)

Related works:
Working Paper: The geography of acquisitions and greenfield investments: firm heterogeneity and regional institutional conditions (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:115597

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