Title

What Drives Economic Growth? The Case of Cross-Border M&A and Greenfield FDI Activities

Document Type

Article

Language

eng

Format of Original

15 p.

Publication Date

2009

Publisher

Wiley

Source Publication

Kyklos

Source ISSN

0023-5961

Abstract

The effect of aggregate foreign direct investment (FDI) on economic growth remains uncertain in the literature. We revisit this FDI–Growth relation by analyzing the components of FDI – greenfield investment and cross-border mergers and acquisitions (M&As). Our analysis contributes to the existing literature by focusing on potentially heterogeneous growth effects of different FDI entry modes. Using a sample of 84 countries from 1987 to 2001, we separately examine the growth effects of greenfield investment and M&As. We find that greenfield investment and M&As have different impacts on economic growth. Greenfield investment promotes economic growth while M&As can be beneficial only when the host country has an adequate level of human capital. Our results provide support for receiving M&As when policymakers allocate more resources for human capital accumulation.

Comments

Kyklos, Volume 62, Issue 2, pp 316-330 (April, 2009). DOI.