Impact of Greenfield Investment and M&A on the Host Country’s Economic Growth: An Assessment of the EU Member Countries

Dražen Derado and Darko Horvatin
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Dražen Derado: Faculty of Economics, Business and Tourism, University of Split
Darko Horvatin: Effectus University College Zagreb

Ekonomski pregled, 2025, vol. 76, issue 4, 315-337

Abstract: Empirical literature regarding the ultimate effects of foreign direct investment (FDI) on host countries’ economic growth does not reach a unanimous conclusion. To fill the gap, this paper differentiates greenfield investments from mergers and acquisitions (M&A) and focuses on the host country’s innovativeness. A total sample of 25 member countries of the European Union (EU) over the period 1999-2018 has created a balanced panel dataset, which made it possible to analyse the separate effects of greenfield investment and M&A on economic growth. Panel data analysis with fixed effects, corrected for groupwise heteroskedasticity and cross-sectional correlation, confirms that different types of FDI generate different effects on economic growth and concerning the host country’s innovation capacity. More specifically, M&A achieve the strongest contribution to economic growth in countries with stronger innovation capacities, while greenfield investments add more to economic growth in countries lagging behind in innovation.

Keywords: FDI; M&A; greenfield investment; innovativeness; EU. (search for similar items in EconPapers)
JEL-codes: C23 F21 F43 O30 (search for similar items in EconPapers)
Date: 2025
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