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Good and useless FDI: The growth effects of greenfield investment and mergers and acquisitions

Philipp Harms and Pierre†Guillaume Méon

Review of International Economics, 2018, vol. 26, issue 1, 37-59

Abstract: We explore the effect of foreign direct investment (FDI) on economic growth, distinguishing between mergers and acquisitions (M&As) and “greenfield†investment. A simple model underlines that, unlike greenfield investment, M&As partly represent a rent accruing to previous owners, and do not necessarily contribute to expanding the host country's capital stock. Greenfield FDI should therefore have a stronger impact on growth than M&A sales. This hypothesis is supported by our empirical results that are based on a panel of up to 127 industrialized, emerging, and developing countries over 1990 to 2010.

Date: 2018
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