An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries

Philipp Harms and Pierre-Guillaume Méon

No 11.10, Working Papers from Swiss National Bank, Study Center Gerzensee

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 captures the key difference between the two types of FDI: 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. The model suggests that greenfield FDI has 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.

Pages: 31 pages
Date: 2011-11
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Citations: View citations in EconPapers (9)

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Working Paper: An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries (2011)
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