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Good and bad FDI: The growth effects of greenfield investment and mergers and acquisitions in developing countries

Philipp Harms and Pierre-Guillaume Méon

No 14-021, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: We explore the effect of foreign direct investment on economic growth in developing countries, 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, which show that greenfield FDI enhances growth, while M&As have no effect, at best, in a panel of up to 78 developing and emerging countries over 1987-2005.

Keywords: Growth; foreign direct investmen; mergers and acquisitions; greenfield investment (search for similar items in EconPapers)
JEL-codes: F21 F23 F43 O16 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2014-08-20
New Economics Papers: this item is included in nep-cse and nep-int
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